Telecom 'sharpening pencil' on UFB bid

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Telecom is re-pricing its bid for involvement in the national ultra-fast broadband initiative, and hopes to hear within weeks whether it will be chosen as a partner in the $1.8 billion government-sponsored project.

The head of the national telco's Chorus unit, Mark Ratcliffe, said the company has been "sharpening its pencil" since losing out in the first round of preferred partner choices, which were announced last month and went to three regional bids led by electricity network companies in Timaru, Whangarei, and the Waikato.

"We have had lots of detailed discussions with CFH about where we could improve our bid."

Telecom chief executive Paul Reynolds also warned the company risks running out of the time to split itself into two companies - a key part of its UFB bid offer - if the government's agent in the initiative, Crown Fibre Holdings, doesn't announce choices in the next few weeks.

Speaking to reporters for the first time since its shock at exclusion from the first round of preferred partners, Reynolds said discussions had become "earnest and serious" in the last three to four weeks with both CFH and government departments responsible for telecoms regulation.

"We're pleased there's real and good discussions taking place," Reynolds said.

"There's dialogue now in the true sense of the word."

Previously, no such discussions had been possible because of the tight provisions of the UFB bidding process.

However, open discussions had been advancing since the Ministry of Economic Development released its discussion paper on telecommunications regulation reform in mid-September.

MED concluded that demerging Chorus from Telecom would "represent a significant change" to the industry, but wouldn't resolve network competition challenges. It also said regulatory consistency across fibre and copper is important, and government policy should be used to promote competition through opening access, while avoiding over-regulating immature industries.

Telecom will only structurally separate its network assets from its customer services if it is both a preferred UFB partner and the current web of regulations controlling Telecom's business is amended to reflect the new competitive environment that UFB will usher in.

Reynolds has said previously that the structural separation needs to be achieved by mid-2011.

"To achieve that, we need to start on demerger in the next few weeks," he said. A decision would have to be made in that timeframe on whether to proceed. "You can't wish that away when you have a global shareholder base."

To the suggestion Telecom would struggle to bid lower than locally owned lines companies, Reynolds said there was "no question that some community lines companies have different capital structures from ours", but Telecom had competitive advantages in its national reach, technology, and customers that lines companies did not.

Telecom also released more detail on exactly which parts of the business would be bundled into the new network-owning business, dubbed Chorus2, and the remainder of Telecom's services, in a company temporarily named "ServCo".

Chorus2 would own all Telecom's fibre and copper wire networks, its physical plant, and most exchange buildings, and regional backhaul services. ServCo would retain the mobile network, the public switch telephone network (PSTN), service platforms such as messaging, and national backhaul.

Each would have its own board of directors and management, and be separately listed on the NZX.

Telecom shares were trading today at $2.02, 1 cent lower than their closing price yesterday.