Vodafone buys TelstraClear for $840 million

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Update 2: Representatives of Vodafone and TestraClear are due to speak at a media conference at 11:45; in the meantime, Vodafone has issued its own statement, chief executive Russell Stanners saying the acquisition 'gives Vodafone a compelling set of products and capabilities for consumers and businesses'.

"The two businesses are very complementary," Stanners says.

"The transaction is expected to create significant cost and capex savings from a combination of the two companies' networks, commercial operations and administrative functions. If approved, it will create a new force in the New Zealand market."

The transaction is due to be completed in the fourth quarter of this year.

Telstra has lifted its interim NZX trading halt.

Update: Telstra has confirmed it will sell its New Zealand subsidiary, TelstraClear, to Vodafone New Zealand, for a price of $840 million.

The sale, which is still awaiting regulatory approval, includes TelstraClear's voice and data-based services, its network infrastructure, and its kiwi customer base.

David Thodey, CEO of Telstra, says in a statement the sale has 'strong strategic rationale'.

"The deal is a natural one, bringing together TelstraClear's fixed telecommunications and data products and corporate client base with Vodafone New Zealand's mobile offering and retail customer base," Thodey says.

"The transaction is consistent with Telstra's overall strategy and capital management framework that we outlined in April."

Story: Telstra has halted trading of its shares on the NZX, pending the release of an announcement expected to answer speculation about a possible sale of its New Zealand division, TelstraClear, to Vodafone.

The company first announced the talks of a possible sale in May, sparking speculation about what effect the shake-up could have on the market, and whether the company could be 'clearing the decks' to make way for a purchase of Telecom.

We'll post an update when we hear more.


Published by techday, By Mike Borgfeldt, Thursday, 12th July, 2012
Link to article:  http://www.techday.co.nz/telecommunicationsreview/news/vodafone-buys-telstraclear-for-840-million/24152/6/

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TelstraClear sale: what the CEOs say

The CEOs of Vodafone and TelstraClear have spoken to media about the purchase of the latter from Australian parent Telstra, Vodafone boss Russell Stanners in particular stressing the complementary qualities of the two companies. 



Pending regulatory approval, the $840 million deal will see TelstraClear's business integrated into that of Vodafone over the next 18 months, Stanners says, 'bringing together two great teams' to tackle a rapidly changing marketplace.

"We see these businesses as very, very complementary," Stanners says, citing examples like presence around the country (Vodafone in Auckland, TelstraClear around the rest of the country), product strengths (Vodafone in mobile, TelstraClear in fixed line), and brand presence (Vodafone among consumers, TelstraClear among enterprises).

"The key is bringing together these teams and unleashing them," Stanners says.

On the management side, Freeth looks set to continue leading TelstraClear during the integration period.

He took the opportunity to thank his staff, as well as parent company Telstra for its support of the subsidiary's endeavours.

"They have been a consistent and trusting shareholder that's allowed us to run autonomously... and unhesitantly allowed major capital investment," Freeth says.

While some jobs may be lost 'in back office areas where there are some overlaps', Stanners says the deal is 'all about us growing and investing in the marketplace'.

That marketplace is set to become tougher, Stanners adds, thanks to the government's Ultra Fast Broadband (UFB) project.

"We see our partners as potential competitors going forward," Stanners says, referring to system integrators like Datacom and IBM as well as content partners on the consumer side.

Meanwhile, acting Telecom CEO Chris Quin has also offered his two cents on the deal, saying he welcomes the competition and that his company is 'in a strong position to succeed and grow our business'.

"Demerger has given us clarity and focus," Quin says in a statement.

"We are well placed to compete on both of the key areas of competition [mobile and broadband].

"We also know how distracting major transactions such as Vodafone's can be at both a regulatory and local execution level, and it is not a done deal yet."

Image: Vodafone CEO Russell Stanners.


Published by techday, By Mike Borgfeldt, Thursday, 12th July, 2012
Link to article:  http://www.techday.co.nz/netguide/news/telstraclear-sale-what-the-ceos-say/24155/6/

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Telstra agrees to non-competition clause; reaction in Australia to sale.

Vodafone CEO Russell Stanners told a media conference today that he expects job losses in overlapping back office roles following the acquisition of TelstraClear, but he would not comment further on numbers or from which areas of the business.
 
Telstra announced it will sell its New Zealand subsidiary TelstraClear for $840 million to Vodafone this morning, although the sale is subject to approval by three government agencies.
 
Market rumours that Telstra will use the proceeds of the sale to buy Telecom appear to be just speculation.

TelstraClear chairman Gordon Ballantyne says there is a non-competition clause in the contracts but the terms and dates of that clause are confidential. This makes it likely that Telstra can't come back in another form in New Zealand and compete against Vodafone.
 
Stanners says TelstraClear's fixed line network will allow Vodafone to further pursue the highly lucrative enterprise market. Further investments in creating hosted solutions will be made, and Stanners names Datacom specifically to likely be one of Vodafone's new competitors.
 
The consolidation of the two companies would give Vodafone a 26 percent share in the fixed line business, according to Vodafone.
 
Stanners says as a part of this deal, Vodafone will receive spectrum that is currently allocated to TelstraClear. Telstra in Australia will retain two 5 MhZ blocks of 2100MhZ spectrum and two 15MhZ blocks of 1800MhZ spectrum.
 
At the conference TelstraClear CEO Allen Freeth thanked Telstra and his team at TelstraClear for the work they’ve done over the last eight years in New Zealand.

Freeth's future
 
A spokesperson for TelstraClear says "that until the sale is confirmed, there is no change and TelstraClear and Vodafone remain competitors, with Allan Freeth running TelstraClear. "
 
At the media conference it was stated that “if and when regulatory approvals are granted Russell Stanners will be the CEO of the combined business”.
 
Reaction across the ditch
 
In Australia the Sydney Morning Herald is reporting that the sale makes the end of Telstra’s “overseas misadventure” (http://www.smh.com.au/business/telstra-retreats-from-overseas-misadventures-20120712-21xbs.html?rand=1342054446807) and there was little point in Telstra holding onto a business “whose contribution to the group's profit was barely discernible”.
 
Ovum analyst David Kennedy, who is based in Melbourne, says Telstra’s withdrawal from the New Zealand market shows that scale and integration are needed to justify foreign network investments.
 
“For Vodafone, its acquisition of TelstraClear is part of its ongoing global strategy to use fixed assets to support an integrated operation, especially in the enterprise segment,” writes Kennedy.
 
“The market will become more rational following the sale of TelstraClear, with two large integrated and scaled operators, alongside smaller value-seeking players to keep competition alive and well.”
 

Published by Computerworld, By Sim Ahmed | Auckland | Thursday, 12 July, 2012
Link to article:  http://computerworld.co.nz/news.nsf/news/telstraclear-sale-vodafone-ceo-expects-job-losses?opendocument&utm_source=topnews&utm_medium=email&utm_campaign=topnews

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TUANZ warns of cosy duopoly if sale goes ahead.

IDC telecommunications analyst Peter Wise says the price Vodafone is paying for TelstraClear - $840 million – seems a little high.
 
Telstra announced it will sell its New Zealand subsidiary TelstraClear this morning, although the sale is subject to approval by three government agencies.
 
Wise suggests the price may be high because there is cash on the balance sheet, but he stresses this is only speculation.
 
He says both parties appear to have navigated spectrum concerns. Each is limited to 25MHz but Telstra in Australia will retain 5MHz so Vodafone won’t exceed its cap.
 
Meanwhile TUANZ CEO Paul Brislen warns that the sale could lead to a “cosy duopoly” in the telecommunications market between Vodafone/TelstraClear and Telecom.
 
“I'm very hopeful that this is a good thing [the sale] but the danger of the cosy duopoly must be considered," he says.
 
"On the one hand it gives us a real competitor to Telecom for the first time ever - Vodafone and TelstraClear combined have a fixed line market of about 30 percent - still a long way short of Telecom but far stronger than any other player. The danger is that they become a cosy duopoly, carve up the market and sit there without competing properly.
 
“I'd hope that Vodafone has learned from Telecom's mistakes and won't go down that track - it would be disastrous if we ended up having to regulate a future Vodafone the way we have Telecom.
 
Brislen says the impact of the sale will affect will be felt by FX Networks in the national backhaul market and 2degrees in the mobile market.
 
“The real concern should lie around FX Networks and 2degrees and how they respond in their respective markets - both now face two large, integrated competitors and how that shakes out will be very telling.”


Published by Computerworld, By Randal Jackson and Sarah Putt | Auckland | Thursday, 12 July, 2012
Link to article:  http://computerworld.co.nz/news.nsf/news/telstraclear-sale-has-vodafone-paid-too-much

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Bronwyn Howell says merging two telcos could see greater investment in copper network at the expense of fibre.

If Vodafone buys TelstraClear it may extend the life of the copper network, at the expense of the government-backed Ultra Fast Broadband roll out, says academic Brownyn Howell.
 
Telstra confirmed it is in talks with Vodafone over the possible sale of Telstra's New Zealand division TelstraClear in June, and speculation is increasing that an announcement about a possible sale is due soon.

Howell, general manager at the New Zealand Institute for the Study of Competition and Regulation, says if the sale goes ahead a combined Vodafone and TelstraClear would have around 30 percent of the fixed line broadband market.

Both companies have considerable local loop unbundling investments in the copper infrastructure (Vodafone has unbundled 51 exchanges, mostly in the Auckland area and TelstraClear has unbundled 61). Howell suggests that working as competitors it has not been commercially attractive for the telcos to undertake sub-loop unbundling (because the number of potential customers in a roadside cabinet is considerably less than in an exchange) but if the two companies are put together the equation becomes more attractive.

“The merger is thus likely to extend the life of the copper network beyond what it would have been had the merger not occurred. The risk is that this will decrease the economic efficiency as the two networks (copper and fibre) will run in parallel longer than would have been the case without additional merger-induced investment,” she writes.
 
The alternative would be for the incoming telecommunications commissioner Stephen Gale to “increase the copper access price in order to discourage investment in sub-loop unbundling in the first place, or to accelerate substitution to fibre after the fact,” Howell writes.
 
However, Howell points out that the commissioner’s “primary regulatory responsibility is the promotion of competition on the copper network.” Certainly the outgoing commissioner Ross Patterson has appeared to support this view by signalling that copper access pricing will decrease.
 
Vodafone head of corporate affairs Tom Chignell said copper network pricing will be an important issue for Gale when he assumes the post on Thursday. In a Radio New Zealand interview last week Chignell said “the re-pricing of those (copper) services will set the scene for the intermediate period from now through to when fibre becomes pervasive.”
 
In response to follow up questions from Computerworld, Chignell says he can’t predict when fibre will be the dominant technology.

“I don’t think anyone really knows what the uptake of fibre will be and therefore how long copper and UCLL will be around and viable. It’s pretty tricky when assessing unbundling business cases,” Chignell writes in an email.
 
“Obviously the cost to connect is a key driver and, as you know, we are keen to get clarity on this issue as soon as we can. Particularly with respect to non standard installs.”
 
Chignell says Vodafone is trialling UFB technology with customers but couldn’t say when the company will launch services more widely. “All I would say is that there is a great deal of work for a retail service provider to do to prepare for market.”
 
Chignell wouldn’t comment on Howell’s suggestion that a Vodafone/TelstraClear merger would see greater investment in the copper network.
 
Before a TelstraClear sale to Vodafone could take place, Howell suggests it will require clearance from the Commerce Commission.
 
She writes that the proposed sale would give the newly merged company 30 percent market share in the fixed line broadband market, with market leader Telecom around 50 percent.
 
“As the three-firm concentration is over 70 percent (indeed, it is nearly 80 percent) and the market share of the combined entity is more than 20 percent it would seem that in respect of the internet access market at least, an investigation is warranted.”
 
Howell's paper on the proposed merger of TelstraClear and Vodafone is available here. http://www.iscr.org.nz/n745,61.html


Published by Computerworld, By Sarah Putt | Auckland | Monday, 9 July, 2012
Link to article:  http://computerworld.co.nz/news.nsf/news/telstraclear-sale-to-vodafone-could-limit-ufb-take-up-academic-warns

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Computerworld examines Vodafone’s application to the Commerce Commission seeking clearance to buy TelstraClear

Vodafone has applied to the Commerce Commission for clearance to buy TelstraClear from Telstra in Australia for $840 million. The document – studded with the gaps that contain “commercially sensitive” information – provides some interesting assertions.

The date for a decision is given as July 27. Here are ten questions the Commission might consider.
 
1. What is the market? Under the merger and acquisition guidelines the Commission must first define the market that may – or may not – become substantially less competitive should a merger take place. Vodafone says it has “adopted the Commission’s historic approach of regarding mobile and fixed line services as falling within different markets.” In the same paragraph (page 32, paragraph 98) it says it will consider the impact on businesses looking for a single source of fixed and mobile services (presumably the reason why Vodafone needs TelstraClear’s fixed line assets to compete against Telecom) – so what’s it to be? Are fixed and mobile markets separate, or not?
 
2. How competitive is the market already? According to the Commission’s annual telecommunications market report, market share in home internet connections is split as follows: Telecom at 49 percent, TelstraClear 16 percent, Vodafone 13 percent – that sees the three top players with 78 percent of the fixed line market.
 
In the mobile market the customers are divided as follows: Vodafone has 47.8 percent, Telecom 37.6 percent, 2degrees 13.6 percent. However in the mobile market customer numbers may not equal revenue share. Analyst Paul Budde claims the revenue market share in mobile is Vodafone at 62 percent, Telecom 31 percent and 2degrees 7-8 percent. (When Computerworld has published Budde’s figures in the past Vodafone has disputed them – but refused to provide an alternative revenue market share figure).
 
3. What happens to Vodafone’s existing national and CBD fibre backhaul suppliers? Vodafone’s document points out that it has no current national or CBD fibre backhaul infrastructure, so by gaining TelstraClear's backhaul it won’t limit competition. But what about Vodafone’s existing suppliers – FX Network nationally and Vector in Auckland – won’t the loss of Vodafone’s business substantially decrease their business and provide a more difficult market for these companies to compete in because they will be up against two (almost) vertically integrated telcos – Vodafone and Telecom?
 
4. What about Vodafone’s track record as a wholesaler? Vodafone’s document says the company will continue to provide wholesale services to 2degrees, Kordia/Orcon and others (page 3). But what do those wholesale service agreements look like? Especially the agreement in which 2degrees has to pay Vodafone every time one of its customers strays from its infrastructure footprint. The provision to allow roaming is regulated but not the price, terms and conditions. The price could be crippling 2degrees for all we know. Should the Commssion demand to see it before greenlighting the sale?
 
5. What about international connectivity? Vodafone’s document points out that TelstraClear provides trans-Tasman retail services over the Southern Cross Cable and Tasman II, which Vodafone does not currently (it buys its services from Vocus, which resells Southern Cross). So does this mean that if Vodafone buys TelstraClear it would get its international connectivity business, and if so would Vodafone still be interested in using the services of Pacific Fibre – the proposed alternative international cable that appears to struggling to get finance?
 
6. What is in the restraint of trade clause? Presumably the Commission will see the terms of sale, which includes the secret restraint of trade clause mentioned by TelstraClear chair Gordon Ballantyne at the press conference when he announced the sale last week. What does this mean? Telstra is one of the most cashed up telcos in the Asia Pacific, for how long is the New Zealand telco sector to be denied any kind of investment from this company? For example, could it exclude Telstra from investing in Pacific Fibre (see question number 5) or extend its own international cable to New Zealand?
 
7. Will the sale stall the uptake of Ultra Fast Broadband? This may not come under the Commission’s purview but it’s worth raising, as academic Bronwyn Howell has noted– a combined TelstraClear/Vodafone is likely to invest more, not less, in the copper network to the detriment of the new taxpayer-backed fibre network. According to Vodafone’s document, upping its investment in unbundling the local loop is advantageous to consumers (page 14, paragraph 35). “It also benefits consumers in the long run as unbundled exchanges continue to provide a competitive constraint on fibre pricing following the rollout of UFB”.
 
But the wholesale pricing of UFB has been set by Crown Fibre Holdings and the Commission has oversight on those contracts. So Vodafone’s argument appears to be that a player with almost 30 percent share in the fixed line market which invests in copper is providing some kind competitive constraint on fibre pricing. It would be interesting to see a counterfactual on that assertion.
 
8. Why no mention of the Chorus/Vodafone agreement in Rural Broadband Initiative in any detail? Why is this government-backed partnership not analysed anywhere in Vodafone’s public document. Together, these companies have secured a $300 million government contract to rollout services to the sector that is the highest earning export earner for New Zealand. Yet the only mention we could find of the contract in the public document was in the glossary on page 64.
 
9. Should Vodafone’s new spectrum allocation in 1800MHz be taken into consideration when 700MHz spectrum is being divvied out? The process of how the valuable 700MHz spectrum will be allocated is due before cabinet shortly, according to a spokesperson for ICT Minister Amy Adams. But if Vodafone increase their amount of 1800MHz spectrum, should this impact how much they can bid for in the 700Mhz spectrum auction (there’s 45MHz available and Vodafone has publicly said it wants 20MHz). Again, not strictly within the Commission’s purview, but maybe it should be taken into account by another government agency?
 
10. Does past behaviour suggest a Telecom/Vodafone duopoly in the fixed line market? Here we return to the number one issue – how do you define the market? Until mobile termination rates were regulated Telecom must have been forced to pay Vodafone a substantial amount because of the difference in market share. And yet Telecom always lined up behind Vodafone in arguing again MTR regulation – why?
 
Could it be because Telecom was/is protecting its fixed line voice revenues (the $45 a month most of us pay for a home phone line)? In other words, it's not in Telecom’s interest to have low mobile calling rates because its customers could abandon their home lines and their revenues would drop.


Published by Computerworld, By Sarah Putt | Auckland | Monday, 16 July, 2012
Link to article:  http://computerworld.co.nz/news.nsf/news/opinion-10-questions-for-the-comcom-on-the-telstraclear-sale?opendocument&utm_source=topnews&utm_medium=email&utm_campaign=topnews