Telecom in UFB discussions with Government

Agreement sought before split plan put to shareholders

Telecom says it needs a "heads of agreement" on ultrafast broadband with the Government by year end before it starts preparations for a potential shareholder vote on a structural split. Chief executive Paul Reynolds says the telco has just started talks with Government departments on its ambitions to win chunks of a UFB national fibre network build. He says those talks will remain largely confidential. Telecom says it needs deal terms, or a heads of agreement with the Crown by year end before any shareholder vote in early 2011 to split into two companies by July. "We'd need to reach a heads of agreement with Government on terms, and following that we would need to create scheme documents for two new companies – the network business and the service business of Telecom," Reynolds said after the company's annual meeting in Christchurch yesterday. The Government would also need to introduce legislative changes to enact regulatory and other changes. If talks went well the company would go to shareholders with two prospectuses for the envisaged companies, outlining prospects for those businesses and why taking shares in the two was better than the status quo. Chairman Wayne Boyd said Telecom wanted to be part of the Government's UFB initiative, given it already had more than 25,000 kilometres of fibre optics in operation, roughly half of the 75 per cent of households total required. Should Telecom not agree an appropriate package with the Government, it was well positioned to co-exist with state-owed infrastructure too. Reynolds said Telecom could partner with electricity lines companies on a fibre build but wanted to be the "cornerstone" partner of a national bid. While Crown Fibre Holdings has already said it would negotiate with electricity lines firms WEL, Northpower and Alpine Energy, "no-one" had yet been accepted for the fibre build, Reynolds said. Telecom could do a great job in those particular geographic areas given its existing fibre presence, but there was "scope for partnerships in this". "If there is a lines company or someone else who has a proposal or a means of building it that is cheaper than ours or a source of capital that is cheaper than ours, we would be open to a commercial agreement." Reynolds said negotiations with the Crown by the end of this year would need to show that "a deal can be done". Telecom has already submitted a detailed proposal, – including a move to split the listed telco into two entirely separate companies – one that builds and maintains infrastructure and another that sells services to end users. International investors had tended to put their money elsewhere than Telecom given the high amount of regulation here, Reynolds said. If the company could take away that uncertainty he believed the share price would appreciate. Estimates had put that between 10-30 per cent. Telecom shares yesterday closed 6c lower at $2.02. In the past two weeks Telecom representatives had begun the negotiation phase. Talks with the Ministry of Economic Development, Crown Fibre Holdings and regulatory meetings run by the MED, were going well. "We'll now be discussing absolutely what can be committed to. Things like where you (are geographically), how fast you go, how much it costs to build." Asked if he could end his term as chief executive if he achieved the aims for a fibre build and separation, Reynolds said: "I would take a look at it at that time."

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