Telstra sells New Zealand subsidiary to Vodafone

Updated: Contingent on regulatory approval.

Telstra has sold its New Zealand subsidiary TelstraClear to Vodafone New Zealand for $660 million.

The deal, which had been rumoured since early June, includes TelstraClear's voice and data-based services, as well as network infrastructure in the country and the entire New Zealand customer base.

The deal includes conditions ensuring service continuity for trans-Tasman customers.

“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,” Telstra chief executive David Thoday said in a statement to the Australian and New Zealand stock exchanges.

Vodafone NZ chief executive Russell Stanners said the acquisition would boost the telco's product portfolio, with a focus on Christchurch, one area where TelstraClear has significant fixed line assets.

"If approved, it will create a new force in the New Zealand market in readiness for the ultra-fast broadband roll out, providing customers with a full suite of fixed and mobile telecommunications products," he said in a statement.

He pointed to the country's equivalent of the National Broadband Network — Ultra-Fast Broadband — and its effects on the telecommunications market structure as a key driver for the deal.

"The UFB created a new playing field," Stanners said, noting the network would make for an "extremely competitive marketplace" in New Zealand.

Stanners said pay TV over fibre would become an important competitive factor in the UFB world. TelstraClear and Vodafone already have pay TV offerings through Sky TV that feature HBO and similar channels.

Stanners will be CEO of the merged group but said it would take 12 to 18 months to complete the transition.

Telstra will be restricted from competing directly against Vodafone in New Zealand for at least five years under the agreement.

The deal is expected to be completed by the end of the year but remains subject to scrutiny from New Zealand regulators, including the Commerce Commission, Overseas Investment Office and Ministry of Business, Innovation and Employment.

Analysts weigh in

Telecommunications Association of New Zealand CEO Paul Brislen cautiously welcomed the deal.

"This deal has the potential to really stir up the NZ market, hopefully for the better," he told iTnews.

Brislen said a combined asset base of mobile network capability, fibre backhaul and the agreement with Telstra to continue servicing trans-Tasman clients would place Vodafone in the driving seat in the New Zealand market, challenging incumbent Telecom NZ for dominance.

He warned, however, that the deal could produce a "cosy duopoly" between Telecom NZ and Vodafone, and said the Commerce Commission will need to take that into consideration when reviewing the deal.

Ovum analyst David Kennedy said Telstra's withdrawal from the market showed the telco's acknowledgement of its lack of scale and integration in the foreign market.

"Telstra has exited a difficult position in New Zealand, while Vodafone is now a worthy rival to Telecom New Zealand in both mobile and fixed," he said in a statement.

“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,” said David Kennedy, Research Director at Ovum.

More to come...