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Cabinet signs off rural telco plan - Updated

16 Mar 2010

Impact on Telecom's earnings] The government’s plan to provide for the 25% of New Zealanders not covered by its Ultra Fast Broadband plan has been signed off by Cabinet.

In a statement today ICT Minister Steven Joyce says the rural telecommunications plan will mean 97% of rural households will have broadband services of at least 5Mbps and the remainder will get speeds of at least 1Mbps.

The plan is to roll out fibre to 97% of the country’s schools and turn rural schools into a broadband hub from which to deliver connectivity to the surrounding community.

Joyce says as a result of feedback the government has placed greater emphasis on connecting the community (Rural Women queried whether concentrating on schools would result in another project PROBE, which they claim has failed to deliver broadband to rural households).

The initiative is expected to cost around $300 million, with $48 million from a government grant and $252 million from a new Telecommunications Development Levy, being set up to replace the existing TSO. Currently the industry pays a levy to the TSO and this is then handed over to Telecom in order to compensate it for providing a phone service to remote customers at the same price as urban customers. Joyce says changes to the TSO levy will not affect the TSO obligation to continue to provide free local calling.

The new levy is expected to raise $50 million a year and this will fund the project for six years.

The government expects to call for Expressions of Interest in April, and for the purpose of the tender the country will be split into 20 regions. There is no preference for regional or national solutions. Funding will be allocated in October/November and work is expected to begin in early 2011.

Update: Telecom released the following statement at 11.05am to the NZX on the earnings impact expected due to government's rural telecommunications announcement:

“Today the Government confirmed the rural broadband plans that it originally set out in September 2009.

Telecom NZ advised today that if these plans are enacted in their current form, Telecom’s EBITDA guidance for each of the 2011, 2012 and 2013 financial years will be adversely impacted by up to $56 million.”

Telecom shares traded at $2.21 at the time of the announcement, but closed the day at $2.17.