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# 144226 12-May-2014 11:24

So what do you think about this move?

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  # 1042096 12-May-2014 11:25
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Got a source?

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  # 1042100 12-May-2014 11:28
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Did this get confirmed, or are we still playing rumour mill?

 
 
 
 


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  # 1042104 12-May-2014 11:31
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Inphinity: Did this get confirmed, or are we still playing rumour mill?

Rumour mill by the sound of it.

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  # 1042107 12-May-2014 11:31
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If they do it will be interesting. Id like to see some sort of package deal with pay monthly mobile / naked broadband like vodafone do.

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  # 1042178 12-May-2014 12:18
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This says it all really:

http://billbennett.co.nz/2014/05/11/2degrees-orcon/

"If 2degrees couldn’t find the $22 million to buy the third chunk of 700 MHz spectrum, it can’t afford Orcon.

 

In hindsight, the government’s 700 MHz spectrum auction was a great deal. The reserve price for each paired block of spectrum was set at $22 million. Thanks to the rules that meant each of the three carriers could each buy three blocks at the reserve price.

 

Vodafone and Telecom NZ picked up their full allocation, 2degrees purchased two blocks leaving one on the tablet. This was later sold to Telecom NZ for $83 million.

 

Which means 2degrees couldn’t find $22 million in  to buy an asset the market prices at $83 million. That’s a return in less than six months of around 270 percent.

 

Compare this missed opportunity with buying Orcon. The formerly state-owned ISP and phone company is in trouble. It lacks scale in a market where scale matters.

 

Orcon is essentially bankrupt. Regardless of the price, Orcon needs a serious cash injection to get back in the game. I don’t have access to the numbers, but I suspect it needs considerably more than $22 million.

 

For what?

 

Certainly not a quick return of 270 percent."

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  # 1042182 12-May-2014 12:25
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ouch

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  # 1042212 12-May-2014 12:45
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It would be a good move if true..  2D could do with another vehicle into the home..




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  # 1042240 12-May-2014 13:09
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NonprayingMantis:  Certainly not a quick return of 270 percent."


Whilst I have no special knowledge in regards to a bid on Orcon and wouldn't discuss it even if I did, I feel bound to point out that there was no 270% ROI on the spectrum sale. A 'return on investment' is made if you buy something and then sell it again at a higher price. Since we didn't buy the spectrum in the first place, no return - quick or otherwise - of 270% was made by anyone. And if we had bought it, we wouldn't have immediately turned around and sold it again for $83M (otherwise, if that was our plan, there was nothing stopping us from doing so, no?)

If his analysis of Orcon's 'financial black hole' is as solid as his definition of what constitutes a return on investment, I'd be worried about basing any financial decisions on it.




iPad Pro 11" + iPhone XS + 2degrees 4tw!

 

These comments are my own and do not represent the opinions of 2degrees.


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  # 1042282 12-May-2014 13:45
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SaltyNZ:
NonprayingMantis:  Certainly not a quick return of 270 percent."


Whilst I have no special knowledge in regards to a bid on Orcon and wouldn't discuss it even if I did, I feel bound to point out that there was no 270% ROI on the spectrum sale. A 'return on investment' is made if you buy something and then sell it again at a higher price. Since we didn't buy the spectrum in the first place, no return - quick or otherwise - of 270% was made by anyone. And if we had bought it, we wouldn't have immediately turned around and sold it again for $83M (otherwise, if that was our plan, there was nothing stopping us from doing so, no?)

If his analysis of Orcon's 'financial black hole' is as solid as his definition of what constitutes a return on investment, I'd be worried about basing any financial decisions on it.


Well I can't speak for Bill Bennett, but I guess he as implying that the 'market value' of that spectrum was $83m, and if 2D could have bought it for $22m that was a steal.

ROI doesn't have to be realised/crystalised  (i.e. you don't have to have actually sold the spectrum in order to say you have ROI)

His analysis is simplistic yes (he is a journalist after all :P  ), but I think the overall logic is sound.  He suggests that if 2D are crying poor about not being able to afford $22m for spectrum that is apparently critical to their future growth, then they definitely can't afford similar amounts (or more) to be able to buy an ailing ISP that is going nowhere.

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  # 1042304 12-May-2014 13:53
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NonprayingMantis: This says it all really:

http://billbennett.co.nz/2014/05/11/2degrees-orcon/

"If 2degrees couldn’t find the $22 million to buy the third chunk of 700 MHz spectrum, it can’t afford Orcon. In hindsight, the government’s 700 MHz spectrum auction was a great deal. The reserve price for each paired block of spectrum was set at $22 million. Thanks to the rules that meant each of the three carriers could each buy three blocks at the reserve price. Vodafone and Telecom NZ picked up their full allocation, 2degrees purchased two blocks leaving one on the tablet. This was later sold to Telecom NZ for $83 million. Which means 2degrees couldn’t find $22 million in  to buy an asset the market prices at $83 million. That’s a return in less than six months of around 270 percent. Compare this missed opportunity with buying Orcon. The formerly state-owned ISP and phone company is in trouble. It lacks scale in a market where scale matters. Orcon is essentially bankrupt. Regardless of the price, Orcon needs a serious cash injection to get back in the game. I don’t have access to the numbers, but I suspect it needs considerably more than $22 million. For what? Certainly not a quick return of 270 percent."


I think this simplifies things a bit too much in coming up with that conclusion:
- A market with only 3 buyers, all of which happen to be direct competitors is going to behave a bit funny - it's not a simple perfectly competitive market. Sure, Telecom might value a chunk of spectrum to them at $83m, but would they be willing to hand their competitor a $61m profit? We can't assume that Telecom would have bought it off 2d for that price.  A 270% profit sounds great with hindsight, but it's awfully risky when you consider there was no guarantee that one of 2d's competitors would buy that chunk of spectrum off them
- 2d is much smaller than the other two, it doesn't need as much spectrum as they do

I'm not saying that 2d do have the cash, rather I think that analysis makes some big inherent assumptions

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  # 1042355 12-May-2014 14:48
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2D are the only major mobile player to not have a fixed line business.  This means they can't compete with competitors' bundling deals.  They will never be able to sell a "complete telecommunications package" without buying a fixed line operator.

So I'd assume it's more a matter of when they'd buy one, and who they'd buy, than if they'd expand in that area at all.

I'm a reasonably happy 2D and Orcon customer (apart from poor reception on SH3, grr).  So I'd be happy if they merged, and offered some sort of discount for combining services.

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  # 1042364 12-May-2014 15:01
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Can someone point to me what is the main problem with Orcon? Why are they in a bad shape?





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  # 1042374 12-May-2014 15:13
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I think it will be a good move for everyone. I can't really see any negatives. 2D will  find it difficult to compete with the deals the TC and VF currently offer where htey bundle services, if they don't also  have a fixed line business.

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  # 1042405 12-May-2014 15:44
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nakedmolerat: Can someone point to me what is the main problem with Orcon? Why are they in a bad shape?


they were just bought a year ago, and are already up for sale again (apparently).  That doesn't suggest a particularly healthy company.

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  # 1042513 12-May-2014 17:36
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NonprayingMantis:
nakedmolerat: Can someone point to me what is the main problem with Orcon? Why are they in a bad shape?


they were just bought a year ago, and are already up for sale again (apparently).  That doesn't suggest a particularly healthy company.


Does that really matter though. It comes down to the customer base they have, and how that can be leveraged.

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