Spark says a deal for Telstra to buy a 25 per cent stake in Southern Cross Cable Network is now just days away from completion. The long-gestating deal was first announced last December.

And the telco has also confirmed that its once-wide rivers of gold from Southern Cross will dry up completely over the next two years as part of the drive to fund a new trans-Pacific cable, dubbed Southern Cross Next.

The 16,148km Southern Cross Next cable (in green) will be laid by Alcatel go live in Jan 2022. Its more direct route to the US than the original, figure-8 cable (in blue) will give it lower latency.
The 16,148km Southern Cross Next cable (in green) will be laid by Alcatel go live in Jan 2022. Its more direct route to the US than the original, figure-8 cable (in blue) will give it lower latency.

Going into the deal, the Bermuda-based Southern Cross Network - which runs the Southern Cross undersea fibre optic cable running between Australia, NZ and the US, was 50 per cent owned by Spark, 40 per cent by Optus and 10 per cent by Verizon.

The deal will see Spark's holding diluted to "approximately 40 per cent" the telco said today, depending on the final shape of the deal.

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Between 2000 and 2018, the Southern Cross cable was New Zealand's only major broadband link to the outside world, and Spark's share of the cable company's profit was a major contributor to its bottom line.

In 2017, Spark's received a $61m dividend from Southern Cross. But that fell to $50m in 2018 and just $15m this year amid new competition from the trans-Pacific Hawaiki Cable (whose directors and major investors include rich listers Malcolm Dick and Sir Eion Edgar, and 2degrees alumnus and enfant terrible Tex Edwards) and the Tasman Global Access cable linking Auckland and Sydney (a joint venture between Spark, Vodafone and Telstra).

Forsyth Barr Matt Henry and Matt Dunn say competive pressure and the ageing nature of the Southern Cross cable are behind the dividend squeeze - which was, in turn, blamed for Spark's drop in overall profit in the first half.

Hawaiki has sharpened competition across the board and managed to snag major customers including Amazon Web Services and Vocus.

Today, Spark confirmed that it would receive no Southern Cross dividend in 2020 or 2021. The news was first broken to Spark shareholders when Spark delivered its full-year result.

And new Spark CEO Jolie Hodson warned in an August 24 Herald interview that once Southern Cross dividends resume, they will be at a "more modest level than they have been in the past." (Hodson also reassured that Spark's own dividend to its shareholders would be held at 25 cents per share in 2020.)

Today, Spark said Telstra's 25 per cent stake in Southern Cross is now a done-deal beyond a few "procedural details" that are expected to be finalised this week.

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Shareholder and regulatory approval for the deal has now been gained, and work is poised to begin on Southern Cross Next.

Spark and Telstra both declined to immediately comment on what the Aussie telco paid for its stake.

But they did say it was part of wider arrangement to fund the US$300m Next cable, which will see Telstra buy capacity as an anchor customer as well as injecting equity.

Beyond Telstra's equity injection and anchor customer contract, the new Next cable will be funded by debt, other early customer contracts, and equity from Spark, Optus and Verizon.

In its case, Spark expects to contribute a total of between $70m and $90m of equity across its 2020, 2021 and 2022 financial years.

It expects its profit payout from Southern Cross to resume in 2022.