Telecom to invest $1.4 billion on broadband in next four years...

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freitasm

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#16754 26-Oct-2007 11:45

http://www.geekzone.co.nz/content.asp?contentid=7457

Telecom CEO Paul Reynolds announced today that over the next four years Telecom would deliver fast broadband to every town and city in New Zealand, based on a world-class next generation network.

Paul Reynolds was speaking following the submission of Telecom’s Undertakings for operational separation.

“Operational separation brings some tough requirements, but is good for customers because it promises more choice; good for New Zealand because it promises new investment; and good for Telecom because we can compete in an environment in which the need for any future regulation is greatly reduced.

“Specifically, we plan to install more fast ADSL2+ technology, more fibre to the street, and create a next generation network capable of supporting a wide range of world class Internet Protocol-based services for our wholesale and retail customers.

“This enhanced network is world-class and will support the provision of sophisticated offerings, including faster broadband up to 20 Mbps, and VoIP services.

“And investment in fibre can support new technologies and services reliant on even faster speeds in the future.”

Examples of townships that will benefit from the enhanced access network include Edgecumbe and Ngatea in the North Island, and Methven, Riverton, Pleasant Point and Waikouaiti in the South Island.

“Over the next five years, we anticipate that total expenditure on our next generation network and fast broadband will amount to some NZD$1.4 billion.”

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#92517 26-Oct-2007 12:15

He is certainly "Talking the talk", time will tell if he can "Walk the walk".

I'm sure the residents of Waikouaiti are waiting with baited breath (and ADSL modems).

Now based in Perth WA.

sbiddle

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#92520 26-Oct-2007 12:40

It's very much a feel good press release that doesn't actually reveal anything new. All Telecom are really revealing is a bit more about their NGN which is nothing new to anybody who's been following Telecom's plans.

It is very exciting news and with the NGN Telecom will have one of the most advanced networks in the world.

old3eyes

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#92521 26-Oct-2007 12:45

sbiddle: It's very much a feel good press release that doesn't actually reveal anything new. All Telecom are really revealing is a bit more about their NGN which is nothing new to anybody who's been following Telecom's plans.

It is very exciting news and with the NGN Telecom will have one of the most advanced networks in the world.

By the time the NGN is up and running which I believe is now about 2010 the rest or the world will have left us behind..

Regards,

Old3eyes

nzbnw

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#92553 26-Oct-2007 15:20

old3eyes:
By the time the NGN is up and running which I believe is now about 2010 the rest or the world will have left us behind..

The reality is I don't believe for one minute that we have it that bad in New Zealand, despite what the media say. Having been overseas quite a few times this year, from Asia to the Americas, I haven’t seen anything in regards to internet access that is to write home about.

But you’re entitled to your opinion.

nzbnw

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#92555 26-Oct-2007 15:35

I see a positive statement from Telecom to upgrade their network in New Zealand over the next four years. This includes rural towns which were previously under threat of technology stagnation. cheers. George

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#92580 26-Oct-2007 17:20

old3eyes:

By the time the NGN is up and running which I believe is now about 2010 the rest or the world will have left us behind..

I wish! This part of the world which constitutes a quarter of the worlds population isn't going to be overtaking NZ broadband anytime soon......

STI

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#92594 26-Oct-2007 18:37

nzbnw:
old3eyes:
By the time the NGN is up and running which I believe is now about 2010 the rest or the world will have left us behind..

The reality is I don't believe for one minute that we have it that bad in New Zealand, despite what the media say. Having been overseas quite a few times this year, from Asia to the Americas, I haven’t seen anything in regards to internet access that is to write home about.

But you’re entitled to your opinion.

nzbnw

When you consider state of broadband internet in New Zealand you have to look at the broadband uptake and the availability for rural customers, not just download speed.

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KiwiOverseas66

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#92605 26-Oct-2007 20:02

STI:
When you consider state of broadband internet in New Zealand you have to look at the broadband uptake and the availability for rural customers, not just download speed.

but with satellite - the coverage is 100%??

but if you exclude satellite - then as of 2003 (latest OECD report I could find) - NZ was 13th in the OECD with 84.8 percent coverage - about the same level as Germany, Findland, uk. Another consulting report I found from 2006 gave the figure at 95%. Not bad for a country whose per capita GDP is 28th in the world, and actual GDP is 50th.

http://www.oecd.org/dataoecd/38/40/31718094.pdf

http://www.wairua.co.nz/publish/Comparison%20of%20UK%20and%20NZ%20consumer%20broadband%20Feb-2006.pdf

sbiddle

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#92612 26-Oct-2007 21:31

I can't believe Telecom's share price dropped 2.5% on todays announcement. Makes you really wonder about the mentality of the average Telecom investor when they get spooked by capital investment that has been planned for years and the announcement of infrastructure that is critical for their NGN to operate!

freitasm

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#92614 26-Oct-2007 21:58

The new CEO is probably now thinking "What the hell am I doing here? These investors don't believe in long term planning"...

maninimepo

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#92623 27-Oct-2007 00:27

$1.4bn doesn't sound like enough to me, especially for a "Next Generation Network" (and I wouldn't describe fibre to the street as next generation anyway!!).

Is this the guy that has just come over here from BT? I bet he is loving the chance to actually splash some cash on upgrades though!

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#92624 27-Oct-2007 01:00

sbiddle: I can't believe Telecom's share price dropped 2.5% on todays announcement. Makes you really wonder about the mentality of the average Telecom investor when they get spooked by capital investment that has been planned for years and the announcement of infrastructure that is critical for their NGN to operate!

You have to remember, most investors have been educated in the steady cash machine that has been telecom since privatisation - restricted capital spending is part of that formula.

SOMEONE had to eventually stand up and say "I'm going to reduce returns to the market for the next few years by investing more - and setup the machine for even better returns after that".

Which means less $$$ from the machine over the next few years while they do that.

It's a shame Reynolds got given this hospital pass, but he's done the right thing by agreeing it and getting it out and done. Goodness only knows what backroom deal was done with the Govt to make this investment only $1.4bn in size - Fibre to the Node is expensive.

Of course this now means more spending, more jobs, more silly marketing campaigns and so on. I just hope they don't outsource everything to Lucatel who bring in overseas contractors to do the job.....

________

Antoniosk

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#92625 27-Oct-2007 04:36

1.4 billion over 5 years is 300 million per year. The thing is - if this is all being spent on the NGN then this will be additional expenditure over and above annual capital expenditure.

maninimepo: $1.4bn doesn't sound like enough to me, especially for a "Next
Generation Network" (and I wouldn't describe fibre to the street as
next generation anyway!!).

What? You mean there something faster than the speed of light running over glass? ;-) Sorry - just kidding. If you've ever managed to survive the tranquiliser effects of a set of Telecom annual accounts you'll find a line item called "annual capital expenditure" - which for the past few years has been sitting at around 3-500 million per anum. Telecom regularly spends about half a billion on capital purchases across the group. No surprise really given that providing mobile, internet, data, and voice services across a network of 800 plus exchanges to about 2.1 million homes - its going to take a bit of kit to get it all done. Technology upgrades or changes (such as the NGN, or change from CDMA to UMTS) have to be done as seperate expenditure since you can't halt all other expenditure while you roll out new technology. The point is that the expenditure of 300 million on the current phase of the NGN will most likely be in addition to the annual capital expenditure. So total expenditure for the year could be around 800 million. Over 5 years - 4 billion?

Presumably while the announcement talks about expenditure over the next 5 years, it obviously doesn't mention any of the preceeding expenditure on the NGN core. So the NGN roll out has been going on since 2002,2003 - starting with the install of the juniper MPLS core. If I remember rightly originally this was going to be based around about 6 core Juniper M40s I think (since one of these boxes was capable of handling everyone in the country making a phone call at once - 6 were thought to be sufficient). The line cards in one of these boxes alone was something like a million bucks back in 2003. In other words - these babies are not cheap. At last count Telecom had 20 plus of these boxes (?) - including something like 10 in Oz, 2 in LA, 2 in London, and maybe 2 in Tokyo (?)

In addition to the m40 - Telecom also deployed some Juniper m20s, and of course a whole heap of riverstone switches in smaller town/ suburban exchanges. So now the next phase I guess is fibre to the node! Excellent - finally have a single link to the node that supports 10meg plus, instead of having to aggregate multiple 2meg copper circuits. 4 years is doable.

antoniosk: You have to remember, most investors have been educated in the steady
cash machine that has been telecom since privatisation - restricted
capital spending is part of that formula.

SOMEONE had to
eventually stand up and say "I'm going to reduce returns to the market
for the next few years by investing more - and setup the machine for
even better returns after that".

Actually the steady flow of cash goes both ways. The money for capital investment comes from the investors, loans, etc. Whole of network projects like the NGN, UMTS, etc - far outweight the ability of any carrier to pay for it out of profits alone - which means going to the market to get capital. The ability of any private company to get capital relates directly to its ability to pay it back plus a return on top of that. In other words - without the cash flow - there would be no cash in the first place.

The problem here is one of perception I think. People see Telecom annual profits and think "bloody hell - 800 mil profit - they must be ripping us off, and they haven't spent enough on their network". What people don't see are the costs. Start with debt. NGN core, EVDO/ REV A, UMTS - all require debt financing. In 2005/06 - Telecom had totals debts of 3.5 billion. In 2006/07 - it was down to 1.5 billion (so you can see where most of the yellow pages sale went). Then there is corporate tax (for the last financial year - 350 million). Then there are labour costs which were 733 million last year. Suddernly - 7-800 million dollars profit isn't looking so big. IMHO you are right in that costs have be controlled tightly because if any one of those items gets out of control (debt, HR, capital expenditure, tax - etc) it will do so in a big way - but I don't think that translate into a deliberate "lets restrict capital expenditure as permanent process to boost profits". Telecom's desire to spend on NGN, UMTS, EVDO, REV A, Gen-I, etc....and get a return on these things is what gets the investors in the first place. If investors think Telecom can't do its job - bye bye cash - bye bye Telecom.

Anyway - if you've lasted this long you can all wake up now .....

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#92629 27-Oct-2007 08:49

Could a reason be for this, if telecom starts putting down fibre to the cabnet then they can phase out the exchanges hence no-where for LLU competitors to plug-in their gear?

sbiddle

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#92635 27-Oct-2007 10:07

DjShadow: Could a reason be for this, if telecom starts putting down fibre to the cabnet then they can phase out the exchanges hence no-where for LLU competitors to plug-in their gear?

Telecom's plans are nothing new. It's been well know for several years now that Telecom plans to shut down virtually every exchange in the country, deploy a FTTN network and that every phone in the country will be VoIP based.

LLU was a good planned move and will allow competition well before Telecom's NGN is complete but it was never going to have a huge impact on Telecom. With seperation of their network and retail arms Telecom stand to gain by offering wholesale services at a cost that will provider better value to ISPs and other telcos than what they could get deploying their own gear.

Anybody who believes Telecom are in for a rough ride over the next few years has completely misread what is happening. In 5 years time Telecom could be a lot stronger than what they are now.

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