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State-owned broadcast and telecommunications operator Kordia has finally snared an internet retail company, announcing a $23.4 million takeover of Orcon.
Kordia (formerly Broadcast Communications) said last year it was looking to buy internet companies in New Zealand as part of a push to become a telecommunications retailer.
It bid for internet and phone company ihug, but was beaten by Vodafone, which bought ihug in October 2006 for $41 million.
Kordia chief executive Geoff Hunt said the growth area for the company - originally the transmission arm of the state broadcaster - had been the telecommunication side of its business.
"The acquisition of Orcon is just a logical extension of our telco activity in this country."
However, Hunt confirmed it would not be the last acquisition Kordia would make in the telecommunications market.
"We do think there is going to be ongoing consolidation and we intend to be a participant in that."
Hunt said with the increasing convergence between broadcast and telecommunications services, the acquisition of a telco company strengthened Kordia's business.
"We would not have been interested in local loop unbundling without the security of knowing there was a retail arm we could work very closely with in order to ensure that was a success," said Hunt.
Hunt said Kordia would look to Orcon to develop broadband wireless business Extend.
The Extend network has capacity for 20,000 customers, but had only signed up 2000 through reselling deals with Telecom, BayCity Communications and Iconz.
"We knew that we had to get much more strongly in the retail space if we were to really realise the potential of that network."
Industry analyst Darian Bird of IDC said buying a retail internet service provider would give Kordia more control over the growth of its Extend service.
He said the access to network infrastructure also gave Orcon an advantage over rivals ihug and CallPlus.
"Up until now Orcon ran the risk of over-stretching themselves if they tried to expand too quickly, invest in a network, or start offering too many services," said Bird.
"Financial backing and infrastructure from Kordia will help them take that next step towards being a fully-fledged telco."
Under the terms of the deal, Orcon founder Seeby Woodhouse has sold his 80 per cent stake but will remain with the company for the next two years as an adviser and board director.
Woodhouse said he had no immediate plans and was not actively pursuing other options at the moment.
He had considered a debt raising or venture capital to fund the growth of the company and had turned down "50-odd" offers for the company before selling to Kordia.
The changing regulatory and technical environment required a large investment to build a network and the only option he had was to retain the company only to see it stagnate against other telcos or find a partner, he said.
Mark Mackay, who owned the remaining 20 per cent of Orcon, will stay on as chief technology officer. General manager Scott Bartlett will become Orcon's chief executive.
Hunt said the takeover did not mean the merger of the two companies and Orcon would continue to operate independently with its own board of directors.
"We're going to start where Telecom are trying to get to - we're going to start structurally separate and continue structurally separated."
He said Orcon would have an arm's length relationship with the Kordia wholesale business operating under commercially negotiated agreements.
