Kordia bulks up to join the telco battle

Is Kordia the missing piece in New Zealand's telco market?

In the wake of Telecom’s enforced operational separation, New Zealand’s third-largest network owner, Kordia, is starting to spread its competitive wings. Although it doesn’t see itself becoming a fully fledged rival to the incumbent, it has been bulking up in several ways — and making political noises too.

Last year, Kordia bulked up considerably with its purchase of ISP Orcon, for $24.3 million, in July 2007, and gave itself a retail arm in the process.

Then, in April, it signed a Mem-orandum of Understanding (MoU) with Australian infrastructure provider Pipe Networks to build a second undersea fibre-optic cable across the Tasman — a cable that will go head to head with monopoly rival the Southern Cross Cable.

Even more recently, earlier this month, Kordia signed yet another MoU, this time with the Northland Regional Council to build a fibre-optic network in the Far North. According to the Far North’s mayor and Regional Council chairman, Mark Farnsworth, this starts where the current telecommunications networks stop and “will make broadband accessible to as many Northland businesses and consumers as possible”.

These initiatives are all very much in line with concerns expressed by Communications and IT Minister David Cunliffe at the Digital Summit last November, concerns Kordia chief executive Geoff Hunt freely references. For example, Hunt told Computerworld that Kordia is keen to contest the Telecommunications Service Obligation (TSO).

Cunliffe said the government was considering reviewing the TSO, which underwrites rural telecomms services. At the Summit, he said he was concerned that “Telecom’s annual rural depreciation is estimated to be $50-$70 million, with the age of the rural network suggesting that an ongoing replacement programme should now have been put in place.”

He went on to say that Telecom receives $25 million annually in TSO subsidies and that in 13 years it had invested just $22 million in rural fixed networks.

“It is fair to say Telecom’s average net new investment on rural lines in the recent past has therefore effectively been negligible,” Cunliffe said.

The minister added that “a range of policies are being considered, including a potentially upgraded and/or contestable TSO and possible Crown contributions to Kordia or other vehicles to accelerate rural rollout.”

He also mentioned the need to improve the country’s international connections.

Hunt laughs at the suggestion Kordia could be major rival to Telecom. Kordia is a $265 million company compared with Telecom’s $4 billion in revenue, he points out.

However, he says “Telecom has provided a brilliant return to shareholders over the years, but the service has deteriorated”.

Hunt spent 20 years in the commercial sector before the company he worked for went under. He then worked for Alstom, the French government owned multinational engineering company (he says reporting to the NZ government is easier).

Now, after three years at Kordia’s helm, turnover is up from $120 million and it is still growing (see box story).

Hunt says he thinks the TSO should be contestable and that Kordia is making its views known to the regulators. He also supports building a wireless rural network. Kordia is already part-way to this goal, operating a wireless broadband rural network, which uses line-of-sight radio transmission.

“It’s got quite good capacity and we could sell different packages. It’s as good as DSL, with good contention rates,” he says. The network could service 20,000 people, but currently only 2,500 are connected.

“It is targeted at rural New Zealand and it was very hard with Telecom’s mass marketing approach to sell to that market. It needs a more niche approach,” Hunt says.

Kordia now plans to use the retail expertise it acquired with Orcon to sell services to rural customers. The plan is for the division to become Kordia’s retail arm, selling and marketing beyond the ADSL broadband services it is known for.

A state-owned enterprise (SOE), formerly known as Broadcast Communications, Kordia used to be TVNZ’s transmission arm. It effectively controls the provision of analog and digital terrestrial television and satellite distribution services in New Zealand. It has long-term contracts with broadcasters and short-term contracts in the more competitive — as it sees it — telecomms market into which it is now expanding.

Expansion is international as well. Hunt says Kordia is the biggest broadcasting engineering service company in Australasia. The company bringing Freeview to New Zealanders is using its digital broadcast expertise to secure contracts around the world — for example, in Saudi Arabia, the UK, Malaysia, Papua New Guinea and, more controversially, Myanmar.

The company’s overseas arm, Kordia Solutions, now has a respectable turn-over of $100 million, Hunt says.

Despite state ownership, Kordia is required to operate as a commercial business. It has two ministers on its board but they can’t direct the business. One is Finance Minister Michael Cullen, the other the Minister for State Owned Enterprises and Broadcasting, Trevor Mallard.

“Trevor Mallard might turn up to one board meeting a year,” Hunt says.

Hunt says Kordia’s job is “to provide services and make money. It is not a social service.”

Without undertaking new business, revenue is projected to fall away substantially by 2020, he says.

Nine paths to growth for Kordia

Parliament TV — Kordia secured the full-service contract to supply footage of the parliamentary goings-on for both television broadcasting and internet transmission.

Next generation network — Kordia boasts it already has one and highlights its innovative use to bring surgical care to provincial and rural patients, with the aid of Dr Stuart Gowland’s operating-theatre bus. This features a high-quality video-link to urban specialists, who then monitor operations. The bus is also used at big sporting events.

Unique customer networks — examples of these include the transponders that cargo ships have to carry following September 11. These keep track of ships, but Kordia is keen to expand the service to yachts too. It also runs a service monitoring fishing activity in the protected Poor Knights’ fishing grounds, for example, for Maritime NZ. There is also an ONTRACK service that delivers better communications with trains so that, for instance, milk wagon temperatures can be monitored.

Hot zones — Kordia is presently trialling a metro wi-fi service with Auckland City Council, with a view to a larger roll-out later this year.

WiMax — Kordia plans a rural service in the future, but is waiting on WiMax-chip equipped laptops to bring down the cost of customer premises equipment.

Urban ADSL2+ — the urban fast broadband service is currently being rolled out in Auckland through ISP subsidiary Orcon.

Pipe-Kordia trans-Tasman cable — MoU signed, but detailed business case still being hammered out.

Overseas — Kordia Solutions’ engineering arm is busy securing contracts to supply digital broadcast services to Thailand, Vietnam, Cambodia, Myanmar, Papua New Guinea, and rural and regional Australia.

Wi-fi radio — Kordia is interested in supplying an internet radio service to end-users which could potentially deliver 15,000 radio stations via broadband. Trails are presently under way in West Auckland and Wellington.

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