14 Jul 2012

TelstraClear sale 'could force down prices'

6:15 am on 14 July 2012

Vodafone's purchase of TelstraClear could give Telecom a run for its money and force it to drop prices, a telecommunications group says.

British-based mobile phone operator Vodafone is buying TelstraClear for $840 million, in what is set to be the biggest shakeup in the telecommunications landscape in years.

Telecommunications Users Association chief executive Paul Brislen says there will finally be a company big enough to give Telecom a run for its money.

"When you've got a market that's as skewed as the New Zealand telco market it's not a bad idea that we have another player that is of larger scale," he says.

He says in the past there has only been Telecom and "a raft of minnows".

Mr Brislen says Vodafone's purchase will give it fixed line and broadband assets which will make it a serious rival to Telecom.

"Given what they are buying, given the fibre assets, the customer base, the physical infrastructure that's there, plus also of course the radio spectrum rights that they'll acquire, and it puts them in a very good position".

The $840 million purchase price was more than analysts had expected but Vodafone says the savings it will make from buying TelstraClear makes the price worthwhile, and allows it to compete hard with Telecom on an equal footing.

Chief executive Russell Stanners says Vodafone will have a much stronger presence in the phone and broadband market which will complements its dominance in the mobile phone sector.

He says the company will have more capability to better meet the needs of business customers in particular.

Peter Wise of research company IDC says the seemingly high price probably reflects the value Vodafone is putting on acquiring TelstraClear's fibre-optic cable network to connect its cellphone sites.

He says the mobile traffic is growing strongly with the increase in smartphones and applications, so having a fibre backbone will set Vodafone up for the long term.

Telecom remains the dominant player in the New Zealand market, however. IDC estimates the combined Vodafone-TelstraClear company will have about 28% of the broadband market compared to Telecom's 51%, and 26% of the landline market to Telecom's 68%.

The deal requires regulatory approval, including from the Commerce Commission and Overseas Investment Office.

Commerce Commission will determine whether the takeover will substantially reduce competition.

Mr Stanners says there will be no major job losses among the combined 3200 workers, with reductions restricted to corporate areas like legal and finance services.