Telstra threatens Telecom stronghold

By RICHARD BRADDELL

WELLINGTON - In the largest investment in infrastructure by a new telecommunications entrant, Telstra New Zealand and Saturn Communications will invest $1.1 billion to extend cable services to the five main centres in the next five years.

The two companies will merge to form a national broadband telecommunications carrier that will service business and residential markets.

A final merger agreement is to be signed next month, under which the new company, Telstra Saturn, will be owned 50:50 by Telstra and Saturn's Australian parent, Austar United.

The company has a five-year budget of $1.1 billion, most of which is expected to be spent in the first two and a half years, creating a voice and data network that will pass 65 per cent of homes and 80 per cent of businesses.

Negotiations, which had been going on at a low level while Telstra was endeavouring to complete its aborted takeover of Clear Communications late last year, began in earnest about two and a half months ago.

While owners Telstra and Austar will make equal contributions to Telstra Saturn, it is likely that Telstra will also chip in another contribution to equalise the value of Telstra New Zealand with Saturn, whose $230 million Wellington network rollout far exceeds the Telstra investment in New Zealand to date.

The joint venture is to be run equally, with management and board representation to be split between the Telstra and Austar camps. At this point, it seems likely the head office will be located in Wellington, although the business market focus clearly remains at Telstra's head office in Auckland.

Saturn's chief executive, Jack Matthews, remains chief executive, while Telstra's group managing director of business solutions, Lindsay Yelland, becomes chairman.

Mr Matthews said the aim was to provide a world-class national broadband network offering the widest possible range of products and services and a compelling value proposition to residential customers.

Asked if differences between the two shareholders could create the kind of paralysis often seen as hampering Clear Communications' development, Mr Yelland said that the two owners were in total agreement about the business plan.

Lauded from the Telstra and Saturn camps as bringing together two totally complementary businesses, the Telstra half brings contracts with major banks and corporates while Saturn's focus has been on residential and small businesses.

Telstra Saturn also confirmed it would lay a fibre optic submarine cable running from Auckland via Wellington to Christchurch.

Thought to cost in the vicinity of $100 million, it will bypass existing infrastructure owned by Telecom and Clear and may also service centres such as Wanganui, New Plymouth and Hamilton. Also bypassed will be Telecom's new Southern Cross cable that begins service between Australia, New Zealand and the US this year. Instead, dedicated transtasman bandwidth owned by Telstra will be used with onward links with the rest of the world through Telstra's new Australia-Japan submarine cable.

The joint venture is keeping its options open regarding wireless. While it may seek to extend a reselling agreement Telstra has with Vodafone, it has not ruled out bidding for third generation spectrum in the upcoming auction.

Wireless could be used in place of cable to complete links to provincial centres and Telstra Saturn might also build its own cellular network, thus providing a third competitor to break up the duopoly between Telecom and Vodafone.

Telstra and Saturn/Austar executives made much play yesterday of the confidence given by recent moves to moderate the light-handed regulatory environment, including the Government's telecommunications inquiry.