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Telecom to split for UFB

25 May 2011

Telecom's successful bid for the bulk of the government's UFB contract came coupled with the announcement that its network arm, Chorus, would be spun off into a separate company under the terms of the agreement. 

Telecom said it aimed to "demerge" Chorus by the end of the calendar year. The split would see Telecom and Chorus become two entirely separate companies and, according to Telecom, radically change the telecommunications industry structure. 

Consumer internet watchdog organisation InternetNZ said it welcomed the structural separation of Telecom and Chorus. Chief executive Vikram Kumar called the move a solution to the problems caused by vertically integrated monopoly. 

"It is the logical way to structure the industry," said Kumar. "From staunch opposition, Telecom has now agreed to this approach - a change of view on their part we always hoped to see." 

Sue Sheldon, currently a Telecom director based in Christchurch, has been named as Chairman of Chorus. Sue also sits on the boards of several other high profile NZX-listed companies, including Freightways and Contact Energy, along with holding a directorship of the Reserve Bank of New Zealand. Telecom will continue as a retail-focused telecommunications company comprising fixed, mobile and ICT businesses. It will also provide some other non-regulated services to the industry, such as national backhaul and certain commercial wholesale services.  After a demerger Telecom will no longer own local access fixed networks and will build and deliver services to end users using the Chorus network, just like other RSPs. Telecom’s ownership restrictions will pass to Chorus. Assuming all conditions are met, including legislative change and stakeholder approval, Telecom plans to complete the Chorus divestiture via a court approved scheme by late 2011. 

Chorus deal terms:

Design, build obligations and timeline:

  • The demerged Chorus entity will design and build a fibre fixed line network in 24 candidate areas
  • Fibre build comprises two components:
    • communal infrastructure which will deliver fibre past premises
    • the connection of premises as dictated by demand, including the equipment in the customer’s home to enable service delivery.
  • Chorus Communal Infrastructure
    • The communal infrastructure will be built according to annual build milestones and must be complete by no later than 31 December 2019.
    • The communal infrastructure must pass all premises in the candidate areas. Initial deployment from 2012 to 2015, will focus on priority users (businesses, schools and medical centres) and premises within the vicinity of the fibre network deployed for priority users.
    • The communal infrastructure will pass approximately 830,000 premises, with around 50,000 premises passed by June 2012, and around 100,000 premises passed each year to June 2019.
    • CFH investment of up to $929 million will help fund the cost of the communal infrastructure, with Chorus carrying the risk of any variation in costs.
  • Connection of Premises
    • Chorus will meet the cost of connecting standard residential customer premises and the equipment in the customer’s home to enable service delivery to Retail Service Providers.
  • Connection of premises will be driven by demand.
  • The estimated average cost per premise is between $2,250 and $2,750, which covers both the communal infrastructure costs and the cost to connect the premises.
  • Telecom will start the design and build of the new fibre network in August. Telecom will self-fund the design and build work during the interim period prior to demerger, and CFH’s investment post structural separation will reflect the build completed during the interim period.
  • Telecom Retail and Gen-i have committed to progressively offer fibre-based voice and broadband products from the second half of 2012.
See full details of the agreement here