KEY POINTS:
That's a pretty unfortunate branding clash - the purple of Orcon meets the turquoise of Kordia. Try mixing those colours together and see what you get!
State-owned network operator Kordia has confirmed it has bought Auckland internet provider Orcon for $24.3 million. We taxpayers now own an internet company and Orcon founder Seeby Woodhouse can start expanding his sports car collection.
Some have questioned the appropriateness of Kordia's move from pure wholesaler to become a vertically integrated provider of internet and phone services.
Kordia's model of being a wholesale access provider to all players did seem like a good one. But Kordia has been dissatisfied with its retail partnerships for some time. Its core internet business - wireless broadband access, isn't the core business of partners like Telecom and Iconz and therefore they haven't pushed it to the extent Kordia would like.
The wireless service on offer from Kordia has also failed to catch the attention of farmers and rural communities who have baulked at the set-up costs the service comes with.
Kordia wants more control of how its products are presented to the market and inheriting Orcon's fixed-line broadband subscriber base will give it some leverage in selling its wireless services.
But it appears as though Kordia will keep the two businesses completely separate for the meantime, doubling up only where it is efficient to do so from a networking perspective. That may at least improve Orcon's economics when it comes to paying for network capacity, backhaul, things like that.
Kordia's existing retail partners will now be even less enthusiastic about selling Kordia's products, but if Kordia can get the equipment and installation costs of its wireless services down and get a viable VoIP phone service going, Orcon could become the face of rural broadband delivery.
Should we be happy with how our money has been spent? It seems like Kordia picked up Orcon at a reasonable price, no crazy dotcom figures here.
Maybe that's because there is a lot of uncertainty ahead. Orcon hopes to benefit from local loop unbundling but question marks hang over the pricing and technicalities of that arrangement. Orcon has an agreement to resell Vodafone's mobile service, but just how profitable will this business be? Does Kordia's wireless technology have a long-term future? Will WiMax, satellite or mobile broadband providers usurp Kordia's advantage in rural New Zealand?
There's quite a lot of risk involved for an SOE, which is never going to be in the best position to take big punts on technology. That makes me nervous, but not as much as allowing Kordia to amble along as it was doing. That would merely be a lost opportunity to the country. You've written out a cheque on our behalf Kordia, now show us what purple and turquoise actually makes.
