Telecom/Gen-i sign with Ultra Fast Fibre in central North Island

Infrastructure competition between Chorus and Local Fibre Co likely

Telecom/Gen-i has signed a wholesale agreement with Ultra Fast Fibre (UFF) to retail its fibre-services in the central North Island in a deal which raises the prospect of broadband infrastructure competition between two taxpayer-backed networks.

The UFF agreement is in addition to the national wholesale agreement that Telecom has with Chorus, which was agreed as part of the demerger process last year. Following structural separation Telecom is now a retail service provider, with around 53 percent of the broadband market in New Zealand.

The national agreement Telecom/Gen-i has with Chorus covers areas also covered by UFF, which are Cambridge, Hamilton, Hawera, New Plymouth, Tauranga, Tokoroa, Te Awamutu and Wanganui.

A Telecom/Gen-i spokesperson told Computerworld yesterday that Gen-i clients are aleady using Chorus fibre. “Bitstream 4 input (HSNS Premium) and pricing is available today. Bitstream 3 and 3a services are estimated to be available by mid 2012,” she says.

However, Telecom/Gen-i signed with UFF because of the competitive advantage of having two fibre networks to choose from.

“That will be good for our customers as we will have a choice of fibre providers in areas where both Chorus and UFF are offering the new wholesale fibre services.”

The deal raises the prospect of infrastructure competition between two networks which are being backed by the taxpayer. While Chorus will not be paid by Crown Fibre Holdings to increase its fibre network in the UFF’s area, there is nothing to stop it if it thinks there is a commercial reason for doing so.

UFF is a Local Fibre Co, which is a partnership between WEL Networks and Crown Fibre Holdings (the agency in charge of the Ultra Fast Broadband network). It must complete its roll out by July 2016.

As customers are connected, the LFC returns money to CFH, thus increasing its shareholding in the network.

Chorus is treated differently from an LFC in the areas it is charged with rolling out government-funded network. It has funding of $929 million which is a 50/50 split of interest-free debt and non-voting shares that is to be repaid over 15-25 years. In other words, the government has no say in how the company conducts its business but it does expect a return on its investment.

Yesterday Chorus issued its first debt and equity securities to CFH, for 3,400 premises passed with the new UFB fibre in Albany and Rosebank areas, receiving around $3.9 million from CFH. This was calculated on the basis of $1,118 for each premise that it passes with the UFB network – regardless of whether that premise is connected to the new network.

Computerworld asked Chorus to explain how it is incentivised to ensure uptake of fibre services. Spokesperson Robin Kelly replied:

“In regards to CFH debt securities, if end-user fibre uptake in Chorus candidate areas is less than 20 percent at 30 June 2020, the repayments from 30 June 2025 will be accelerated."

The same applies for CFH equity securities.

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