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Telecom faces big bill as it tip-toes into content with internet TV offering

Friday 21st February 2014

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Telecom Corp's attempt to step out from its legacy business and embrace a new digital future isn't expected to come cheap, according to a fund manager.

The Auckland-based company today announced plans to rebrand itself as Spark and launch a new internet-based television service as online media disrupts traditional models and creates new opportunities. Both are expected to happen in the middle of the year.

Chief executive Simon Moutter told a conference call today the company is budgeting for about $20 million of cash to be spent in the 2015 financial year, about three-quarters of which will get sucked up securing content. Telecom is in the process of negotiating content deals and building an over-the-top platform, where video is delivered over third-party broadband networks, to provide the new services.

"If you're going to get customers, you're going to have to have a big, deep, broad offering," said James Lindsay, senior portfolio manager at Tyndall Investment Management. "You would expect the content purchases they will be making over the coming year or two to get an adequate service offering is going to be expensive."

Telecom will make the TV offering available to all New Zealanders, rather than just its own subscribers, and expects to have about 5,000 hours of content across all genres when it launches.

That compares to the 60,000 films, television programmes, documentaries and sporting titles held by ASX-listed Quickflix, and is dwarfed by the one billion hours of content on California-based Netflix.

Last October, Moutter told a Commerce Commission-led competition conference in Wellington that retail network operators are facing increasing pressure on their revenue streams, and that any shift towards content would have to be valuable enough in its own right to cover the cost of investment.

Today, he told analysts Telecom aims to build value for shareholders with the TV service, which will not only attract users, but is also expected to drive fibre uptake and lift data usage.

A 2012 Commerce Commission study into demand-side issues for high-speed internet services found video services were likely to be the primary driver for consumers at first, and that uptake would accelerate if more options were available.

Moutter dashed speculation Telecom might bid for the local rugby broadcast rights, saying they were accompanied by production obligations that the company wouldn't be capable of meeting any time soon.

Earlier this month Telecom ended a decade-long reseller arrangement it had with pay-TV operator Sky Network Television. That followed the company signing a distribution deal with web-based broadcaster Coliseum Sports Media to play the English Premier League football.

The shares fell 1.5 percent to $1.45 today.

(BusinessDesk)

BusinessDesk.co.nz



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