(Adds analysts' comments.)
By Simon Louisson
Of DOW JONES NEWSWIRES
WELLINGTON -(Dow Jones)- The New Zealand government said Wednesday it would proceed with a NZ$1.5 billion investment to build a national broadband network together with the private sector, while rejecting counterproposals by Telecom Corp. of New Zealand Ltd. (TEL.NZ) and Vodafone New Zealand, a unit of Vodafone Group PLC (VOD).
The new network would be established through a new government company, Crown Fibre Holdings, that will be operational next month. The government will select 33 regional and national operational partners - to be known as Local Fibre Companies - that will build commercial, open access, dark fiber networks.
Communications Minister Stephen Joyce said he expects Crown Fibre Holdings to receive proposals from the Local Fibre Companies by mid-2010. The final deal would allow investment in any number of the LFCs by any one entity or consortia.
"Access to ultra-fast broadband is part of the essential infrastructure of a productive and growing economy and will be crucial to New Zealand improving its competitive advantage in the global market," Joyce said.
"Already, a number of companies have shown interest in the government's broadband initiative. Now it's time to get on with finding the right partners to build these networks."
Joyce said relative to indications from potential partners, Telecom's proposal covered fewer homes and businesses, only provided ducts and not the fiber itself, and "did not clearly result in significant additional private sector expenditure above 'business and usual' levels."
Vodafone's proposal to establish a cooperative fiber company with the country's major telecom operators owning a quarter of the shares, was also rebuffed.
As in the draft outlined earlier this year, the final plan will not allow participation by telecom service retailers, suggesting Telecom would have to fully split its network company, Chorus, from its retail arm in order to participate.
Telecom, through Chorus, is in the process of building a national NZ$1.3 billion fiber-to-the-node network.
Joyce said Telecom was welcome to become a potential partner if it can meet the tender criteria, and national proposals would be considered as well as regional ones.
"The government is also clear that potential partners who already own fiber assets can table options that involve those fiber assets being vended into any new fiber companies," said Joyce.
IDC New Zealand telecommunications research manager Rosalie Nelson said Telecom would have to split Chorus from its retail operations to participate and that would incur costs as well as make it difficult to value Telecom.
The plan would be seriously undermined if the incumbent carriers refused to participate, she said.
A Telecom spokesman said it planned a response later Wednesday. A spokesman at Vodafone couldn't immediately be reached for comment.
Brad Gordon, adviser at Macquarie Equities, said the government's move adds another layer of uncertainty for Telecom as it is unclear whether it could participate.
But Sydney-based telecommunications analyst Paul Budde said the plan was similar to Australia's much praised model.
He said it means a switch from a telecom-centric infrastructure approach and will allow the country to solve social and economic problems with schools and healthcare operators likely to be big users.
Telecom's shares initially fell 3.4% on the news, but by 0300 GMT were flat at NZ$2.68.
-By Simon Louisson, Dow Jones Newswires; 64-4-471-5990; simon.louisson@dowjones.com