Business

Infratil’s Vodafone play may shake up national telco infrastructure

Infratil’s billion-dollar play for Vodafone New Zealand is set to change the way telecommunications firms invest in national infrastructure.

Chief executive Marko Bogoievski told analysts this week that the nation can’t afford to invest billions of dollars in new technology when there are opportunities to rationalise that spending through cooperation and sharing.

“I think our regulators understand that. I think our politicians understand that. I think our customers get that,” he said.

“I think we’ve got a role to play in helping people get their heads around those sorts of ideas."

The carve-out of Chorus from Telecom Corp, now Spark New Zealand, was a step in the direction of shared infrastructure, with the former administration giving the lion’s share of the initial $1.5 billion ultrafast broadband network build to the incumbent rather than award it to other players and risk an overbuild.

The Commerce Commission’s 2018 telecommunications monitoring report showed total sector investment of $1.66 billion in the 12 months ended June 30, up from $1.58 billion a year earlier and the highest since 2014/15.

The regulator considered sharing infrastructure and spectrum may be key to the roll-out of 5G mobile technology when kicking off a study into the mobile market.

The commission was due to release the initial findings this morning, and Bogoievski said he anticipated it would seek to promote competition and bring forward the benefits of new technology to New Zealanders as soon as possible.

“We’re promoting that model. We’d just like to earn a commercial return when doing that,” he said.

Chorus has already mooted such an idea. In late 2017, chief executive Kate McKenzie floated the idea of using a similar model to the UFB in creating a shared, regulated backbone for 5G, which will need a dense roll-out of small cell-sites.

Infratil has pitched itself as keen on freeing Vodafone to pursue a domestic strategy and says it is willing to give it the capital to pursue those investments.

James Lindsay, a portfolio manager at Nikko Asset Management, said Infratil isn’t shy about spending money if there’s a decent return.

He said Vodafone’s plan to rebase its cost structure, by stripping out expenses and introducing greater automation and digitisation is a “reasonably easy and transparent playbook”.

Shared infrastructure was a thornier issue, and while Lindsay expected Spark might be more reluctant, third-placed mobile carrier 2degrees would probably leap at the chance.

“There’s a lot of things that would make it sensible for those guys to come together,” Lindsay said. “2degrees probably doesn’t have the financial wherewithal to do it. And from a New Zealand perspective, sharing some capex wouldn’t be the worst thing in the world to do.”

First NZ Capital analysts noted an Infratil investment in Vodafone gives it a better opportunity to determine its own destiny, but also highlighted issues for 2degrees, which they said was significantly under-investing.

“It will be interesting to see what the ComCom’s preliminary findings on the mobile sector are given our questions on 2degrees' sustainability as a competing infrastructure investor in a sector with limited sharing,” FNZC said in a note on Spark.

They were unsure whether the acquisition will create any headaches for Spark, but did see potential pain for Chorus if Vodafone seeks to switch customers on to urban fixed wireless broadband as a means to cut its wholesale access charges.

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