Australia's Telstra is to sell TelstraClear, its wholly owned New Zealand subsidiary, to Vodafone NZ for $840 million (A$660m) in a deal that is likely to challenge Telecom's long-running domination of the local market.

As a result, Telstra will return about $490 million (A$380 million) in cash to Australia via a "pre-completion" dividend.

Vodafone NZ, which is a subsidiary of the British telecommunications giant Vodafone Plc, will acquire TelstraClear's voice and data services, network infrastructure and customers.

Telstra chief executive David Thodey said the move had a "strong strategic rationale".


"The deal is a natural one, bringing together TelstraClear's fixed telecommunications and data products and corporate client-base with Vodafone New Zealand's mobile offering and retail customer base," Thodey said in a statement.

Research from AUT University released last year showed Telecom had 49 per cent of the home broadband market, TelstraClear had 16 per cent and Vodafone 13 per cent.

Paul Brislen, head of the telecommunications users association (TUANZ), said the deal was likely to challenge Telecom's dominance.

"On the one hand, it's good to see a company finally having the scale to take on Telecom and actually be a serious competitor," he told APNZ.

"With TelstraClear's network behind it, we will start to see some real competition, I would hope.

"We don't want to see a cosy duopoly where both of them just sit back and carve up the market."

As part of the sale, Telstra had entered into an agreement with Vodafone NZ to ensure service continuity for its customers.

The sale is contingent on New Zealand regulatory approval, which is expected to take some months.


TelstraClear chief executive, Dr Allan Freeth, said the deal would not change the products and services offered by TelstraClear.

"The acquisition, if approved, will create a new force in the New Zealand market in readiness for the ultra-fast broadband roll out and will provide customers with a full suite of fixed and wireless telecommunications and data products," he said.

Telecom's acting chief executive Chris Quin said the company was well-positioned to thrive in a consolidating industry.

"Telecom is in an extremely strong position to compete no matter if this acquisition goes through or not,"Quin said in a statement.

"While the changes to the industry dynamics from this proposed transaction are not yet clear, we are well placed to compete on both of the key areas of competition," he said.

Quin said Telecom had confidence in its mobile phone network and that it was a market leader in broadband.


"We also know how distracting major transactions such as Vodafone's can be at both a regulatory and local execution level, and it is not a done deal yet," he said.

Telstra announced on June 5 that it was discussing the sale of TelstraClear to Vodafone.

Telecom shares last traded on the NZX $2.50. down 2.5c.

Telstra shares, which are listed in New Zealand and Australia, traded locally at $4.93, unchanged.