Telstra considering selling TelstraClear to Vodafone

UPDATED: Analyst says 2degrees big loser in proposed TelstraClear/Vodafone deal

Australian telco Telstra Corporation has admitted it is in talks with Vodafone New Zealand over the possible sale of Telstra's New Zealand subsidiary, TelstraClear, to Vodafone.

Telstra was forced into revealing that talks were taking place after rumours of a sale began spreading on Twitter in New Zealand this morning.

TelstraClear media relations manager Gary Bowering initially refused to confirm or deny the rumour.

"We saw that tweet. As you know we don’t respond to rumour or speculation," he wrote in an email.

But in an announcement to the Australian Stock Exchange later this morning, Telstra company secretary Damien Coleman said Telstra “was approached by, and is in discussions with Vodafone New Zealand, to explore the potential sale of Telstra Corporation’s New Zealand subsidiary, TelstraClear to Vodafone New Zealand".

“Discussions are continuing and there is no certainty as to whether an agreement will be reached,” Coleman added.

TelstraClear’s market position

The tweet which alerted media to the proposed sale was from Orcon founder Seeby Woodhouse: ”Hearing rumours @Vodafonenz has bought @TelstraClearNZ to get TCs stock of 4G specturm & consolidate the market. Big telco shake up if true.”

With regards to spectrum TelstraClear has spectrum in the 1800MHz and 2100 MHz ranges. Vodafone has 90Mhz of spectrum equally shared in 900MHz, 1800MHz and 2100MHz and Telecom has 110MHz from 850MHz to 2100MHz.

Aside from spectrum allocation, TelstraClear other assets include:

  • HFC cable in Christchurch and Wellington
  • 16 percent of home broadband market (about 200,000 customers)
  • National backhaul network
  • Around 50,000 MVNO customers (it resells services on Vodafone’s network)
  • High-end business customer base
  • 1300 full time staff and around 600-700 indirect employees.

TelstraClear’s uncertain situation

Analyst Paul Budde says that TelstraClear’s situation has been uncertain for the past decade. “There have been too many strategic diversions,” he says (for example, the Tauranga wireless network that was abandoned).

He says its parent Telstra has “a bag full of money” following the sale of its copper network to NBN Co and now would be the right time to get serious about its New Zealand operation. Instead it appears as to have made “a decision that it wasn’t worthwhile investing in NZ and therefore its talking about selling its assets to Vodafone.”

“Vodafone is a far more serious player in New Zealand, they need to move into the fixed market with the conversion between mobile and fixed, so it makes sense for Vodafone to look at the assets of TelstraClear,” Budde says.

“I don’t think they will pay a premium for TelstraClear because it’s not really interested in buying the business as such but it is interested in buying the various elements of the TelstraClear service.”

Vodafone the leading telco in five years

He says that Vodafone is “to a certain extent” equal to Telecom. Vodafone certainly dominates in the mobile space – while it has shedded a number of low-end prepaid customers, it has gained in the more valuable post-paid market.

“Revenue-wise, it is twice the size of its nearest rival Telecom. Vodafone’s revenue market share is 62 percent as against Telecom’s 31 percent,” says Budde.

“I wouldn’t be surprised if they (Vodafone) become the leading telco given another 5 years.”

Vodafone spokesperson Sarah Newcombe disputes Budde's assertion that it has 62 percent revenue market share. "Vodafone does not have 62 percent market share. The latest Commerce Commission report shows our market share by connections at 47.8 percent. We do not disclose our market share by revenue."

Vodafone globally is reviewing its mobile operations, but while New Zealand is “one of its most profitable countries”, Australia is not. Budde told Computerworld that the two are closely integrated through back office systems, but Newcombe says Vodafone NZ and Australia do not have any shared back office system.

“Because Vodafone Australia is doing so badly, you could argue that Vodafone would sell the whole lot because it's (New Zealand) - very interesting, but very small," Budde says. "But that’s not the decision of Vodafone and that also indicates, in my opinion, that they will struggle on with Vodafone in Australia.”

2degrees biggest loser

Telecom share price dipped 4.33 percent to $2.430 today, but the real loser in a Vodafone/TelstraClear deal could be 2degrees – which Budde says has around 7 - 8 percent of revenue market share. He says 2degrees needs 20 - 25 percent of the revenue market share (as opposed to the customers) to become a “serious force.”

“Without very strong government support in regulation that forces the others to open up their market and things like that, 2degrees is struggling and I can’t see any quick fix,” says Budde.

“I can’t see the government stepping in in the next two years. So 2degrees is in a very weak position, and is becoming weaker because the market is moving faster then they can upgrade their infrastructure and they don’t have the money to continuously upgrade. Look at mobile broadband – that’s where the market is now, 2degrees is five years behind.”

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