Market Insight

Vodafone to Acquire TelstraClear in New Zealand

July 15, 2012

Alzbeta Fellenbaum Alzbeta Fellenbaum Manager – Research and Analysis, Service Providers & Platforms

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Vodafone New Zealand, the country's largest mobile operator, is to acquire TelstraClear, the New Zealand subsidiary of the Australia-based Telstra Corporation, in a NZ$840m (£430m) cash transaction. The acquisition will include TelstraClear's voice and data services, network infrastructure and customer base in New Zealand. The transaction is expected to close by the end of 2012, subject to regulatory approvals.

The deal will enable Vodafone NZ to compete more effectively in the fixed-line services market with the much larger Telecom NZ, which is already Vodafone's main competitor in the mobile market (with Vodafone NZ holding 46 per cent and Telecom NZ 39 per cent share of the market). Telecom NZ currently controls 52 per cent of the fixed-line broadband sector (by IHS Screen Digest estimates) and Vodafone NZ will have a 24 per cent share upon completion of the deal. TelstraClear owns New Zealand's second largest fixed network with a 6,600km fibre backbone connecting 19 of the country's largest cities and an extensive local copper and fibre access network as well as a cable TV and broadband access network passing 150,000 homes in Wellington and Christchurch.

The merger will see Vodafone NZ consolidating its position as the second largest wireline operator in New Zealand, offering all-around communications services. It will also broaden Vodafone NZ's customer base, which has been traditionally focused on small businesses and individuals, as TelstraClear has been strong in the corporate market. Vodafone NZ will now be able to offer a full spectrum of services to customers, thus driving more competition in the Telecom NZ-dominated New Zealand telecommunications market.

The acquisition of TelstraClear's backbone network will also allow Vodafone NZ to compete with Telecom NZ in buying access to ultra-fast broadband, which is expected to be rolled out country-wide by 2019, covering 75 per cent of the population. Under the government-backed scheme (state-owned Crown Fibre Holdings company is responsible for monitoring of the ultra-fast broadband deployment by local fibre companies), Vodafone NZ will be able to purchase the last mile of wholesale access outside of TelstraClear's existing footprint from the local fibre companies. This will allow Vodafone NZ to compete on an even footing with Telecom NZ, and provides an advantage over smaller competitors, as it will be able to offer ultra-fast broadband services on its own network. Given this and also because of the size of Vodafone NZ's investment and its proclaimed interest in raising competition in the market, the development of a potential duopoly between Vodafone NZ and Telecom NZ is unlikely.

Vodafone Corp. is hoping to strengthen its global operations after a relatively stagnant 2011 performance - largely due to the tough economic and regulatory situation in the European market, where it was recently forced to write down the value of its assets in Italy, Spain, Portugal and Greece by £4bn. The TelstraClear acquisition is in line with Vodafone Corp. recent activities focusing on acquisitions to support the creation of local and regional players capable of offering the full spectrum of communications services to businesses and consumers, and follows a £1 billion bid for Cable & Wireless Worldwide, which was announced in April 2012. The deals will see Vodafone Corp.'s position strengthen significantly in the New Zealand and UK markets.

Geography
New Zealand
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