TeamTalk shareholders will vote on 12 April on whether or not to accept Vodafone’s $10m offer for 70 percent of BayCity Communications Limited, the TeamTalk subsidiary that owns TeamTalk’s Farmside business.
TeamTalk says selling to Vodafone will substantially reduce its $34m debt as most of the $10m will be applied to debt reduction, and provide it with greater flexibility for previously announced major capital projects including an upgrade of it mobile radio network to digital technology and transformation of its Wellington fibre network.
In the notice of meeting, TeamTalk tells shareholders that the Farmside business is suffering from a shrinking market for satellite communications as fibre has been rolled out into regional areas, but also as a consequence of quality and service issues experienced by customers.
“RBI solutions offer faster speeds at a lower capital cost and as a result there has been a migration of customers from satellite to RBI solutions. This has been especially evident since TeamTalk’s acquisition of the Farmside Group.”
It adds that satellite still has a role to play in disaster recovery and business continuity planning for enterprise and corporate customers, and says it should have had a greater focus on business customers.
Farmside customers are primarily retail; corporate sales contribute only five percent of revenue. Just over 60 percent of Farmside’s sales go through four billing partners – Farmlands, Farm Source, PGG Wrightson and Ruralco, which are the main rural product suppliers in New Zealand.
To mitigate service quality issues TeamTalk negotiated an alternative satellite provider, Optus, and now says “There is demand for satellite services in the corporate market and possibly this should have been the priority sector to address when the decision to transfer the satellite service to Optus was commenced.
“There is a clear demand from companies and government for both disaster recovery and business continuity planning services as well as specialist services which Farmside is able to supply for servicing remote luxury lodges and for agricultural technology processes and telemetry.”
TeamTalk also sees considerable synergies from having Vodafone on board. “TeamTalk and Vodafone have had a close commercial relationship for many years. Within the rural market. TeamTalk is one of Vodafone’s largest wholesalers of RBI through Farmside. TeamTalk also provides last mile connectivity to Vodafone enabling it to provide a solution for a major corporate rural customer. In satellite, TeamTalk has spoken about the need to gain a larger presence in the small to medium enterprise market as well as servicing the requirements for remote connectivity in terms of telemetry and other services.”
It also envisages using Farmside’s satellite connectivity to backhaul Vodafone cell sites in remote areas, saying “This type of service is in increasing demand with both the agricultural and tourism sectors requiring better cellular coverage.”
TeamTalk also envisages synergies in Wellington where both it and Vodafone have to underground fibre networks that are presently overhead. “Solutions being discussed are the sharing of both ducts and fibre assets along with sharing the costs on future maintenance and upgrades,” it says.
“Whilst the benefits to both companies have not yet been modelled, TeamTalk is of the opinion that this will result in substantial savings, thereby reducing the anticipated capex requirements within the CityLink budgets.”