2degrees' acquisition of internet service provider Snap is being described as a logical move by analysts and allows the company to get into the rapidly growing movie and TV content business.
The company yesterday announced it had bought Christchurch-based Snap for an undisclosed sum - reported to be around $26 million of cash and shares - and would be integrating it in the coming few months to provide a broadband and mobile offering for its customers.
"I think it was a critical move for us," said 2degrees chief executive Stewart Sherriff. "We really had to be in that [broadband] space, and that's the feedback from analysts as well, I think it's just the right fit for the company at this point in time and we're really excited about it."
He said staff were investigating partnering with content providers.
"I've been involved in it myself, it's a work in progress. We always bite off a piece we know we can chew," Sherriff said. "When the time's right we'll come out with a content play as well."
Forsyth Barr equity analyst Blair Galpin said the purchase of Snap, which is estimated to have about 40,000 existing customers, was the smarter move, compared with trying to set up its own internet service which could take up to two years.
He said Snap had a strong market offering for New Zealand's small and medium business sector - where there was a gap in the market.
"From a 2degrees perspective it makes logical sense," Galpin said. "They've been trying to move into business anyway and this is a strong business brand in the South Island. They'll be able to leverage Snap's existing customer base and potentially look to sell mobile services at the same time, so they've now got a product they can look to offer over time to their existing mobile retail base."
Galpin said he was expecting the telco to push more into the business market where margins were higher, with a lesser focus on the retail side. The difficulty would be around integrating the product.
Snap has traditionally focused on ultra fast broadband (UFB), adopting the network early and investing in infrastructure.
Sherriff said he would not rule out a copper offering as well. He said success would come from bundling some sort of mobile and broadband.
IDC analyst Peter Wise said a content deal could involve Netflix or Quickflix but the TV streaming area was already quite full.
The real impact on the market would be once 2degrees had brought its offerings to customers.
"[The impact] will be in the next year if they execute well, once we see what their pricing proposition is, how they go to market and really how many customers they get on the consumer side and if they can win a lot of big enterprise deals."
• 2degrees has 23% of the mobile market by customers and 17% by revenue
• Snap is NZ's fourth-largest internet service provider
• Snap's 120 staff will be integrated into 2degrees in the next 3-4 months.
• Snap was set up 15 years ago and operates mostly in the South Island.