Chorus to be partially government-owned indefinitely

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Taxpayers will be non-voting part-owners of the new ultra-fast broadband network indefinitely, including a chunk of Telecom's infrastructure arm, Chorus.

Telecom will be seeking shareholder approval in coming months to split Chorus from the wholesale and retail businesses and list the infrastructure unit as a separate business on the NZX.

The terms of the deal announced today make clear the government doesn't have to redeem its equity stake in Chrous at any point in the future, though Chorus can buy it back at any point in time.

The deal between the government's UFB vehicle, Crown Fibre Holdings, and Chorus differs fom CFH's arrangements with other successful UFB bidders.

CFH will invest $929 million directly in Chorus on a 50/50 debt/equity basis, rather than making its investment through a Local Fibre Company, as is happening in all other cases.

Government investment in the LFC's could also see taxpayers locked in as long term investors, although the policy envisages the LFC's buying out the government stake in due course.

The exact proportion of Crown ownership in Chorus has yet to be determined.

CFH will also be issued warrants to share in any return that exceeds an annual 16 per cent hurdle rate. The non-interest bearing debt has to be repaid in two tranches in 2025 and 2036.

"You should view the equity investment as preferred non-voting equity," Telecom's chief financial officer Nick Olson said.

"If we choose to buy back (stock), it's at face value at that time."

Telecom today won the bulk of the government's $1.35 billion broadband funding, and will have to split its network and retail service businesses into two listed entities to participate in the bid.

Its shares surged 6.6 per cent to a 15-month high $2.43 in trading today. Telecom expects to have a deeper analysis of its demerger by August, with a court approved split by the end of the year.

Legislation enabling the split was signed off by Parliament's Finance and Expenditure Committee last week, though Communications Minister Steven Joyce later decided against proceeding with a regulatory holiday that would have removed Commerce Commission oversight of fibre pricing.

Chief executive Paul Reynolds told analysts Chorus expects to pay an average of $2,250 and $2,750 per premise to connect some 830,000 premises over the next nine years.

That's net of the government's funds and gross of the drop and common infrastructure spend, and indicates Telecom's spend may be between $1.87 billion and $2.28 billion over the period.

That was broadly in line with Crown Fibre Holdings' estimate that the network will cost in excess of $3 billion, he said.

"There's been a huge amount of rhetoric over the past couple of years, but in the end, real economics won out," Reynolds said.

The agreement protected all private partners from future regulatory changes, and if a future government drifted from current policy too much, Telecom's businesses would be reunited.