Telstra to join Southern Cross Cable, diluting Spark shareholding

Tuesday 18th December 2018

Australian telco Telstra will join Southern Cross Cable Network's SX NEXT project as an anchor customer and take a quarter stake in the trans-Pacific underwater link operator.

Telstra will inject new equity for a 25 percent stake in Southern Cross Cables, joining Spark New Zealand, Singtel and Verizon Business in the operating company. It will also take substantial capacity on the existing cable and the new NEXT underwater link.

The US$300 million project will lay a new 12,250-kilometre cable to carry 72 terabits of traffic between Auckland, Sydney and Los Angeles. It's expected to be completed by the end of 2020 and will provide the lowest latency between Australasia and the US. Latency is a major component in 5G mobile technology, combining very low response times with ultrafast speeds. The expansion will be funded through a mix of capacity payments, equity injections, and finance.

Telstra last week invested A$386 million to secure radio spectrum to support its 5G roll-out in what it's flagged as an A$8 billion investment over five years to be Australia's leading 5G provider.

Today, the Sydney Morning Herald reported Telstra's enterprise division is mounting a major push into China, where it's the only foreign carrier with a licence to operate in and out of the Asian nation.

"This route is extremely important to our business as US to Australia traffic accounts for more than 80 percent of all the internet traffic to Australia," Telstra enterprise head Michael Ebeid said in a statement. "Southern Cross builds on Telstra’s existing footprint in Asia Pacific and creates a critical new path for ‘Australia In’ and ‘Australia Out’ connectivity."

Spark said Telstra's investment will dilute its stake in Southern Cross to about 37.5 percent. It will provide details once the financing arrangements for the NEXT project are finalised.

"Southern Cross NEXT will ensure that Southern Cross can continue to provide high-quality resilient connectivity to New Zealand, and serve our customers’ increasing demand for international capacity for decades to come," Spark's regulatory affairs general manager John Wesley-Smith said. "We welcome Telstra as a prospective shareholder alongside us in Southern Cross."

Spark this year said dividends from Southern Cross Cables will fall in 2019 as pre-purchased capacity from major users declines with the remaining life of the original network. In the June 2018 year, they contributed $50 million to Spark's earnings, down from $61 million a year earlier and $66 million in 2016.

New Zealand's biggest telecommunications company has adopted new accounting standards and is excluding contributions from Southern Cross Cables and other investments from its underlying earnings measure.

Spark shares fell 3 cents, or 0.7 percent, to $4.17 today, in line with a 0.6 percent decline on the S&P/NZX 50 index. Dual-listed Telstra was up 1 percent at $3.06 on the NZX.

(BusinessDesk)

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