CityLink-TeamTalk merger: no sudden moves into wireless

'We are a fibre company and we see our future deliverables based on fibre," says MD

Citylink managing director Neil de Wit is saying little about the company’s immediate plans following a management buyout and purchase of a 67% share in the company by mobile radio operator TeamTalk.

“We have a new cornerstone investor and a new board; we need to ensure the company is working well with that structure and then hone our strategies. But from my point of view it will be a question of more of the same things we have been doing to date.”

In particular, he discounts any new move into wireless. CityLink operates Cafenet wireless hotspots around the Wellington region but will not be bidding for wireless spectrum freed up by recent changes in government policy, and will not be taking an interest in WiMax. “We’ll leave that to others; we are a fibre company and we see our future deliverables based on fibre,” de Wit says.

“Some of those [interested in wireless] may be our customers, of course; fibre is perfect as backhaul for wireless.”

He confirms CityLink will be a party to some of the metropolitan networks that have received or may in future receive funding from the Broadband Challenge part of the government’s digital strategy. “We’re held up as a model for [metropolitan area networking] and we want to stand alongside our sister networks around the country.”

At the same time as the city networks grow, FX Networks is moving into the market with long-haul inter-city links and there is clear scope for co-operation in providing service to organisations with offices in a number of centres, says de Wit.

TeamTalk is known to have been looking around for some time for a suitable investment to lift its rather flat market. CityLink fulfils the chief targets it had set for such an acquisition, says managing director David Ware: “We were looking for a profitable company with a proven business model and a good management team, a New Zealand focus and a strategy for growth.”

TeamTalk will bring capital and administrative expertise to help CityLink expand.

This growth is likely to include setting up metropolitan networks in smaller cities, says de Wit. CityLink has moved into Christchurch in the past few weeks, adding to its extensive Wellington and smaller Auckland coverage.

Emerging “last-mile” opportunities for hooking into the Government Shared Network and the KAREN research and education network make the injection of new investment appear particularly well-timed.

The success of the effort, however, is not dependent on any particular outcome from imminent government decisions on telecommunications policy, say the two directors.

Actual overlap in areas of business is minimal, so there will be little or no shrinkage in staff, they say. Both companies are, however, in wi-fi: CityLink with Cafenet and TeamTalk with Araneo.

The deal is valued at $22.76 million.

A new company, provisionally called Neuco, will be established, with de Wit as managing director.

It will have ordinary equity of $2.5 million, in addition to which TeamTalk will lend Neuco $5m and will subscribe for $6m of convertible notes in Neuco. The company will have another $10m funding from externally sourced senior bank debt.

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