Telecom New Zealand will split into two companies by the end of 2011, after the announcement yesterday its network arm Chorus will build nearly three-quarters of the Government's ultra-fast broadband network.
The Government was spending about $1.5 billion on the UFB project as part of an election promise from 2008.
The news was welcomed by the markets, with Craigs Investment Partners broker Chris Timms saying that finally some certainty had been provided.
"We know Telecom has the UFB roll-out and that Chorus will be split off. The certainty has given investors more confidence, and that has flowed through to the share price."
As part of the deal, Telecom must split Chorus off into a completely separate company.
Telecom was aiming to do that by the end of the calendar year, and has withdrawn financial guidance for the 2012 financial year.
Fibre will be delivered first to priority customers, which include schools, hospitals and businesses; between 2012 and 2015.
That will result in 299 schools being connected within the first 12 months, with an additional 736 schools connected by 2015.
Also, 30 hospitals will be connected within the first 12 months, with a further seven added by the end of 2015.
All New Zealand households are expected to have fibre past their gateways by 2019.
Soon after the sharemarket opened yesterday, Telecom shares were up 14c to $2.42, the highest level in 16 months. The shares rose to a daily high of $2.44 before closing at $2.43, up 6.8% on the day.
There were still some details to work out on how the split would be made - which company would take on the debt and the remuneration, Mr Timms said.
However, it was clear there would be two very different companies listed on the sharemarket.
Telecom would be sales- and retail-focused and Chorus would be an infrastructure company.
Analysts would be frantically reworking their model to provide a likely pricing for shares post-split, but Craigs had long advocated the sum of the parts of Telecom were greater than the current share price, he said.
TeamTalk managing director David Ware said the decision to award Telecom most of the UFB contract was in the best interest of all New Zealanders.
"We look forward to competing with Chorus and Telecom over the coming decades in much the same way we have over the last couple.
"The announcement heralds an exciting time for telecommunications in New Zealand. Now the veil of uncertainty has been lifted from the industry, we look forward to politicians withdrawing from the playing field, allowing us all to invest again, knowing that the ground rules are set," he said.
As part of the deal, the Crown will invest $929 million in the new Chorus pro rata with the core network build - 50,000 premises passed by June 2012 and then about 100,000 a year until completion in 2019.
The Crown investment will be interest-free debt until at least 2025, and the Crown will own B shares with no voting rights or board representation.
Labour communications and IT spokeswoman Clare Curran said tying up public capital from between 2025 to possibly 2036 was a shockingly long deferral.
It would costs hundreds of millions of dollars in interest, more than the $1.35 billion price indicated.
"But this Government will be long gone and won't have to worry."
Ms Curran was concerned about whether there was enough protection in place to ensure effective competition so New Zealanders could receive affordable prices and services.
Telecom chief executive Paul Reynolds said Chorus would be able to deliver fibre past all premises in the 24 regions it had been selected for by 2019 and ensure wholesale prices for fibre products were in line with current copper pricing.
The entry-level wholesale price per month for a 30 megabit per second (mbps) would be $37.50 and a 100 mbps plan would be $55.
"The wholesale rates mean barriers to upgrade to a fibre connection have largely been removed as soon as it is available in an area. As such, we expect retail service providers will seek to convert their customers to fibre as quickly as possible."
At a glance
• Telecom is the Crown's UFB partner in 24 regions, 70% of coverage area.
• Chorus will be split off as a separate company.
• Schools, hospitals and businesses will be priority between 2012 and 2015.
• All households in 24 regions will have UFB access by 2019.
