Telecom makes shortlist to negotiate with Crown Fibre

Updated: Vector claims it's still in the running, CityLink owner less optimistic

Crown Fibre Holdings has selected a further three parties for priority negotiations in the ultra-fast broadband (UFB) initiative and Telecom features prominently. In a statement today CFH has announced the following three parties: Telecom Corporation of New Zealand Ltd: covering 25 candidate areas; Enable Networks: covering Christchurch and Rangiora ; and Flute Joint Venture represented by Aurora Energy Ltd: covering Dunedin CFH chairman Simon Allen says the three parties have provided attractive proposals to CFH , including a combination of access prices in line with those announced last week (wholesale household monthly charges start at $40 a month), the ability to complete the UFB build within the Government's allocated budget, as well as having industry experience and financial strength. ICT Minister Steven Joyce says binding offers with those chosen for prioritised negotiations are expected in the first financial quarter of 2011.

Prioritised negotiations

The companies named today have made it through to the next round of negotiations, but it doesn’t necessarily mean they will sign up to partner with the government in the UFB.

In September, CFH announced it would be negotiating with three contenders in the UFB. These were Northpower in Whangarei, WEL Networks in central North Island, Alpine Networks in Timaru.

Last week it was announced Northpower and WEL Networks (which formed a new subsidiarty UltraFast Fibre) had signed deals to partner with the government in a Local Fibre Co. Alpine Networks is still in negotiation with CFH.

Who missed out

Telecom is in prioritised negotiation for 25 areas, but CFH says its rivals remain on the short list with discussions continuing with these parties. The list of those that haven’t made it to the next round, but which will wait in the wings if Telecom fails to strike a deal with CFH are:

  • Central Fibre Consortium - covering Pukekohe, Waiuku, Rotorua, Taupo, Whakatane, Gisborne, Napier, Hastings, Palmerston North, Feilding and Masterton
  • CityLink Ltd, covering the Wellington region including the Hutt Valley and Porirua
  • Electra Ltd covering Levin and Kapiti
  • Electricity Ashburton covering Ashburton
  • Flute Joint Venture covering Queenstown and Invercargill
  • Network Tasman Ltd covering Nelson and Blenheim
  • Network Waitaki Ltd covering Oamaru
  • Vector Ltd, covering the Auckland region
  • Westpower Ltd covering Greymouth

Vector's reaction

Vector chief executive Simon Mackenzie does not consider his company is out of the hunt yet for the Ultra Fast Broadband contract in the Auckland region. The term "priority negotiations", he says, "only means [CFH] is going into another level of negotiation with Telecom — we’re still very much in negotiation with them. We met Crown Fibre a week ago and agreed to provide them with further information in connection with our bid.” That information, which Mackenzie declines to specify, has still to be supplied.

“I still look at broadband as an opportunity,” he says. “This is just a timing matter. Our focus is on what works for us commercially.”

CFH confirms that despite the “priority” status accorded Telecom and two other contenders, those such as Vector previously identified as shortlisted candidates “are all still shortlisted for the UFB initiative. Discussions will continue with all such parties,” says a “Q&A” supplement to CFH’s announcement.

TeamTalk's reaction

TeamTalk managing director David Ware sees the announcement as almost the last word. “Telecom is definitely in the box seat,” he says; though detailed negotiations with Crown Fibre and the Ministry of Economic Development still have to take place and Telecom’s shareholders need to give their approval to the move.

Ware sees little likelihood of a serious obstacle “though it’s not over till it’s over”, he says. TeamTalk and metropolitan fibre division CityLink are likely now to turn their attention to ways they could co-operate with Telecom and still get a slice of the UFB action.

“And if all that falls away, it’ll be business as usual,” Ware says. CityLink has been competing with Telecom for 15 years and has carved out a niche for itself by specialising in business telecoms, he says. “I don’t see why that shouldn’t go on.”

Telecom structural separation

If Telecom is successful in its negotiations the company will need to structurally separate into two organisations. In a statement today Telecom CEO Paul Reynolds welcomed Telecom’s success in making it to the next stage in negotiations: “We remain firmly of the belief that a structurally separate Chorus as the cornerstone of a national framework for fibre, is the most efficient and effective way to deliver the government’s fibre vision and that is reflected in our proposal.

“We reiterate our openness to partnership with other public and private sector owners of fibre assets, where partnership can improve the overall economics and deliver fibre further and faster for New Zealand,” he said.

According to a presentation Telecom released in October, here is how it propses to split the company’s assets.

Chorus2

Layer 1 assets – copper, fibre, physical plant, most exchange buildings

Layer 2 assets – DSLAMS and most other access electronics

Regional backhaul

ServCo

Mobile network, PSTN and other service platforms (such as, messaging)

Ethernet aggregation (this would be on day-one split as in due course Chorus2 would develop its own Ethernet aggregation assets)

National backhaul

The Ministry of Economic Development has already put out a discussion paper about how the structural separation of Telecom would be managed. It was met with widespread derision in the industry, with some claiming the regulatory framework needed to be coordinated in conjunction with any moves to structural separation.

The Telecommunications Ammendment Bill was introduced to Parliament last week. If passed into law the bill will provide partners in the UFB with a 10-year break from regulation. That means critical issues such as pricing and access that are negotiated by CFH, are likely to stand for the first 10 years because it would restrict the Telecommunications Commissioner from recommending regulation of access to the service provider’s infrastructure until the end of 2019.

Rural Broadband Initiative

Telecom was last week named as a party (together with Vodafone) in a shortlist of three to participate in the Rural Broadband Initative. It is a separate plan to the UFB, according to a Q and A posted on the Crown Fibre website – “The two initiatives are not connected from a commercial or policy perspective and have no bearing on one another in this regard.”

The RBI is being administered by the Ministry of Economic Development. RFP for technology suppliers Meanwhile CFH is involved in a procurement process to select suppliers for layer one and layer two infrastructure in the UFB. “CFH will guide and provide commercial and technical advice along with administrative support during the EOI process to ensure the alignment of the process with the UFB Objective. Although respondents should note there is a governance structure in place to ensure that the Issuing Parties (Alpine Networks, the fibre consortium and Northpower) maintain all decision-making powers in relation to this process. For the avoidance of doubt, CFH does not have the authority to make any decision on behalf of the Issuing Parties,” documents on the CFH website state.

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Tags Crown Fibre HoldingsICT Minister Steven JoycetelecomPaul Reynolds

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