Digital satellites threaten BCL's revenue

By RICHARD BRADDELL utilities writer

In the argument about whether TVNZ should be broken up, its transmission subsidiary, Broadcast Communications, has taken on the status of a holy cow.

But while it is said to be producing the bulk of TVNZ's profit, it may not be quite the cash cow that has been claimed.

BCL made a useful $15.2 million net profit in the June 2000 financial year, compared with $43 million for TVNZ as a whole. And based on the book value of its assets, which is equal to a quarter of TVNZ's $481 million, it appears to be the more profitable operation.

But BCL faces challenges, having invested heavily in telecommunications infrastructure.

Towards the end of last year, it paid $30.5 million to Clear Communications to end a restraint of trade agreement, although not all of that was in cash, with one suggestion being that $5.5 million may have reflected BCL handing ownership of shared fibre optic facilities to Clear.

Regardless, industry sources say that if BCL is to meet its potential in telecommunications, it had to get out of an uncomfortable agreement dating back to Clear's inception, which prevented it from carrying telecommunications traffic over parts of its network.

But telecommunications is an expensive business. BCL has also poured another $30 million plus into building a new microwave backbone network, and it spent $2.3 million on second generation telecommunications spectrum.

The long-term business case for this investment is unclear. But BCL is unlikely to be a huge force in telecommunications in its own right since it will struggle to compete in the cities against fixed wire operators, which are laying cables to service central business districts.

And in spite of the money spent developing its microwave backbone, it is unlikely to pull big telco customers in bulk given that the main carriers are using fibre backbones.

TVNZ satellite partner TelstraSaturn is laying a national submarine fibre optic cable that will connect Auckland, Wellington and Christchurch and points in between.

Another issue that will confront BCL is the probable phase-out of terrestrial television transmission, which provides BCL with the bulk of its revenue, in favour of digital satellite.

According to TVNZ's annual accounts, last year it paid $25 million to subsidiary companies, including BCL, for services.

With both Sky and, from later this year, TVNZ itself, moving towards digital satellite transmission, BCL faces losing the revenue derived from transmitting programming for TVNZ, Sky and TV3 some time in the next nine years.

That leaves BCL facing the traditional problem when faced with shrinking traditional revenue streams - diversify or die.

BCL has an obvious niche in helping other telecommunications carriers to service rural New Zealand. But the other side to the BCL cash cow is that TVNZ may be forced to stump up large sums to fund its telecommunications business.