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Vodafone forges a 'new big world' with TelstraClear deal

Published: 8:17AM Friday July 13, 2012 Source: ONE News

The telecommunications landscape is now a "new big world with two guys fighting it out", a telecommunications expert says.

It was announced yesterday that Vodafone moved to buy TelstraClear from its parent company Telstra for $840 million.

Commentators have since said the deal will be a big shake up for the telecommunications industry and rival New Zealand's biggest player, Telecom.

Paul Brislen, the chief executive from Telecommunications Users Association of New Zealand (TUANZ), told TV ONE's Breakfast Vodafone can now start heating up competition with Telecom.

"What they've bought is a fixed line network, that stretches right the length of the country," he said.

"And what we're hoping is they'll be able to take on Telecom in their heartland of the landline market, and hopefully drive some competition."

Key to the purchase is that Vodafone now has TelstraClear's infrastructure - something it was lacking before yesterday's buy up.

Brislen told Breakfast TelstraClear has been number two to Telecom for a long time, but when you add TelstraClear and Vodafone's market share together, it reaches about 25%.

That is "just getting large enough that they can do some trouble", he said.

According to Brislen, whether or not Vodafone will spark up competition is another question - the company could get involved in a "cosy duopoly" with Telecom.

"They could sit there, divide up all the competition between them, crush all the competition and we get no competition at all - and that is a concern," he said.

But given the size of Vodafone's investment, Brislen thinks Vodafone is doing it to be competitive.

"They're not doing this just to sit there on the market. They're doing it to be competitive," he said.

"I think if they can keep up the competitive intensity that they've talked about all this time, then we will start to see more drive in the market."

Strategy for the teleco players

Vodafone now has the opportunity to offer more services and prices to consumers, Brislen told Breakfast.

Traditionally, Vodafone has concentrated on small businesses and individuals because it did not have the grunt to take on the corporate world, he said.

"Vodafone's never been strong in the Government, large corporate business market. TelstraClear has been," said Brislen.

"Vodafone's emphasis has always been on the small business market and the consumer. Put the two together and there's not much overlap. It means they'll have that full suite of services on offer to all of them."

And with ultra-fast broadband on the horizon, Vodafone will have an advantage over its competitors, according to Brislen.

"They will have the ability not only to connect you to fibre at your house from the exchange, but all the exchanges will be linked in together as well."

Brislen said 2Degrees could be concerned about the move, because it is no longer competing in a market with just mobile companies.

What happens now?

The sale will go through once it gets the green light from the Commerce Commission , Overseas Investment Office and Ministry of Business, Innovation and Employment.

That process is expected to take a few months.

Chris Timms from Craigs Investment Partners told some interesting issues could come out of this process, because the telecommunications market has been a "hot bed" of claim and counterclaim about competition.

"It's possible we need to consider the implications of the sale...but the Commerce Commission may already say there's enough competition," he said.

In February, TelstraClear reported a return to profit on a pretax earnings basis, reflecting its cost-cutting programme.

The Auckland-based company had earnings before interest and tax of $1 million in the six months ended December 31, turning from an EBIT loss of $8 million a year earlier.

Operating expenses fell 7.2% to $270 million, helping lift earnings by 11% to $69 million.