IPOs on hold as 2degrees, Orcon talk merger

IPOs on hold as 2degrees, Orcon talk merger

Orcon and 2degrees are in merger talks. If they strike a deal the pair would form a third force in New Zealand’s telecommunications market. One that is better placed to compete with Spark and Vodafone.

Both companies were preparing floats. These plans are now on the back-burner. This is not the first time the pair have discussed a form of merger. A few years ago 2degrees looked at acquiring the business when its was operating as Vocus New Zealand and the Australian parent wanted a fast trade sale.

Last night 2degrees US-based parent company Trilogy International Partners issued a statement following a trading halt. It said its had paused its initial public offering of shares in 2degrees “in order to consider a possible alternative transaction with another party”. That’s the nearest the two have come to confirming the news.

How a 2degrees, Orcon merger could reshape the telco sector

A merger between the two companies would cement 2degrees strategy of moving from a mobile carrier to a full service telco.

While this move has been in train for years, Orcon would bring its broadband scale and its considerable enterprise and government business along with its cloud and data centres. It also has a retail energy business that it uses to build product bundles to improve customer stickiness.

Orcon has previously struggled to add mobile to its portfolio thanks to New Zealand’s immature Mobile Virtual Network Operator market Combined the two would have around a billion dollars in revenue. The potential for cost savings would be considerable, more than $100 million.

Mobile

Little would change immediately in the mobile market. The Commerce Commission’s 2020 monitoring report says Spark and Vodafone each have around a 40 percent share. Which leaves 2degrees on 19 percent.

The remaining one percent is made up of MVNOs. Adding Orcon’s share of the tiny MVNO business won’t move the mobile market dial. However, the merged business has an opportunity to build mobile sales to Orcon’s fixed line customer base. Over time the market share should grow.

Broadband

In contrast, a merger would immediately reset competition in broadband. The Commerce Commission monitoring report says Spark is the largest broadband retailer with a 40 percent market share.

Vodafone is second with 21 percent. Orcon comes in at number three with 13 percent of the market and 2degrees is next with a 7 percent share.

This suggests a combined 2degrees-Vocus business would be equal second with Vodafone and a long way ahead of the next player Trustpower which has six percent market share.

Wider telco market

Each year the Commerce Commission counts what it calls ‘qualifying revenue’ for New Zealand telcos to determine how much each should pay towards the Telecommunications Development Levy.

While it’s a useful tool for comparing the size of industry players, the calculations include fibre wholesalers. That aside, a combined 2degrees and Orcon would account for around 11.5 percent of the market.

In round numbers that’s around a third the size of Spark and half the size of Vodafone. The next largest retail telco is Trustpower, a long way behind with a 0.8 percent market share.

Australian write-down takes Kordia into the red

Kordia took a $55 million hit at it prepared its Australian operation for sale. That pulled the state-owned network company down to a $47m loss for the year. It made a $9.6 million profit in 2020.

The sale has yet to get regulatory approval. If it goes through, it will, in effect, halve the size of Kordia. Neither Kordia, nor the buyer, Ventia, has revealed the deal price. Revenue for the year was up a whisker at $122.9 million compared with $119.5 million a year earlier. EBITA was flat at $31.8 million.

Kacific cut prices as satellite competition warms

Kacific says it has cut the price of its satellite broadband terminal kit by as much as 50 percent. Prices for New Zealand now start at US$440 (around NZ$630). This compares with around $913 for the rival Starlink hardware.

The company says the hardware is good for speeds of up to 50Mbps down and 10Mbps up. However local resellers quote the download speed at 30Mbps. An uncapped 30Mbps plan on Kacific costs around NZ$290 a month.

CommComms seeks to extend number portability

The Commerce Commission says it plans to extend number portability for another five years. The existing arrangement is due to expire in December. When it renews there will be a small change, customers will be asked to send a confirmation text before numbers are ported to a different carrier. This measure aims to protect customers against fraud.

Vodafone copper to go in six months

Vodafone says it will move around 10,000 customers from old style copper landlines to more reliable digital technology by April next year. Depending on their circumstances customers will move to fibre, wireless, HFC or VoIP services on copper-based broadband connections.

The company says it will save customers money.

2degrees opens trophy cabinet

It may be the smallest mobile carrier, but 2degrees is celebrating a raft of awards for the quality of its network. Ookla, the company behind Speedtest named 2degrees as New Zealand’s most reliable 4G network, the most consistent 4G network and the network with the best 4G availability.

The carrier also topped the recent Opensignal Awards for providing the best upload speed experience, the best video experience and the best 4G availability.

In other news…

CommsDay reports Datagrid has acquired land for its Southland data centre. It has picked a 43 hectare site near Invercargill. Facebook suffered a six hour outage earlier in the week and had its failings publicised by a whistleblower. I discussed this with Kathryn Ryan on RNZ Nine-to-Noon.

Spark CEO Jolie Hodson talks about dealing the the digital skills shortage in an interview I reported for the NZ Herald’s Mood of the Boardroom.

A massive data breach saw more than 100GB of data from game streaming service Twitchposted online.

Reseller News reports on Kordia’s cyber security academy launch.

Microsoft’s Windows 11 Aotearoa keyboard is covered by the NZ Herald.

BusinessDesk says German firm eKomi has acquired Crossware, the Auckland email specialist. (Story behind paywall).

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