Telecom's fibre conundrum

Analysts outline Telecom's possible responses and warn the fibre discussion could veer off course

Telecom may boost efforts to sell fibre-optic connections to schools and businesses in the new year to cherry-pick customers, analysts say.

That could have the effect of undermining the business case for rivals that invest alongside the government in its ultrafast broadband network.

The telco could at the same time make conciliatory gestures by offering to wholesale its 23,500 kilometres of fibre to local fibre companies (LFCs) set up as a result of the scheme and by reiterating its willingness to buy access to their fibre to retail services.

Sources suggest the firm is still a few weeks away from any decisions. But rivals do not expect Telecom to voluntarily split the company, seeing few advantages for the firm. Telecom has indicated it will bid to participate in the ultrafast broadband scheme, despite the fact it cannot be a majority owner of any LFCs.

Forsyth Barr analyst Guy Hallwright says he does not believe Telecom will more aggressively market fibre till it has decided it cannot be part of the scheme.

"If they were out of the process then that is one thing you would obviously do. It will make returns [for LFCs] harder to achieve."

Craigs Investment Partners analyst Geoff Zame says it would be a bit premature, "if not antagonistic", for Telecom to set out a competitive response now. "But clearly they would look to defend their revenue base."

Vector chief executive Simon Mackenzie says it would be inappropriate to intervene against Telecom cherry-picking customers but potential clients should be careful not to lock themselves out of the scheme.

The Government had taken on the uptake risk, so any effect Telecom had on demand for fibre "would sit with them for quite some time". Vector has expressed interest in joining the scheme.

Telecom sells fibre connections with capacities of up to 1Gbit/s, based on usage or a flat rate, in 18 towns and cities. A Wellington 2020 Communications Trust survey showed a quarter of 300 respondents were connected to fibre.

Australian analyst Paul Budde says without a proper dialogue the fibre discussion could veer off course.

"There is little or no hope that investors will invest in the Government's network if Telecom is building its own parallel network."

TELECOM'S POSSIBLE RESPONSES

* Sharpen retail fibre offers to schools, businesses and homes.

* Offer its fibre as backhaul for LFCs on commercial terms.

* Bid to participate in LFCs as a partner with the Government. Offer to be a customer of any fibre that is laid as a result of the scheme.

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