Industry has its say on Kordia review

Sell Orcon and invest in another international cable - that's the message to Kordia from industry stakeholders approached by Computerworld

State owned telecommunications company Kordia is undergoing a strategic review and is in consultation with the Crown over its future.

Originally the transmission arm of Television New Zealand, Kordia became a state owned enterprise in 2003. In 2006 it embarked on a “broadcast to broadband” strategy to ensure survival after its primary income from analogue television dries up following the switchover to digital that is due for completion next year.

Since that time, Kordia has boosted its Australian contracting business, investigated building a trans-Tasman cable, purchased ISP Orcon, and launched a metro wi-fi network and a telecommunications service for at businesses.

Computerworld asked industry stakeholders for their views as to where Kordia’s future should lie.

Kordia’s priority should be to reduce debt and focus on a smaller product set. Selling Orcon is logical and sensible but they may struggle to find a buyer. Their plan to find a partner for their Australian business is a good one - it’s a high risk sort of business that can be profitable one day and bleed cash the next if it misses out on a single contract - not the sort of thing the NZ government should be doing - alone anyway.

In New Zealand they have experimented with a lot of products - not all of them successful - mobile radio is one that springs to mind. They must be a management distraction so they should divest.

The important thing is they still have some of the best people and the best radio frequency expertise in NZ (if not the region) the important thing is not to loose that in the process of unloading everything else.

- Team Talk managing director David Ware

Kordia could have been the shared infrastructure company of New Zealand’s wireless ecosystem - as dominant and profitable player as Chorus is set to be on the fixed line side of things.

Instead of sticking to its core business of maintaining towers and transmission to a high standard, Kordia attempted to grab everything it could. Gallingly, in almost all the cases of their numerous commercial failures, they went head to head with their existing infrastructure and wholesale services customers instead of cooperating with them. And they did so with appalling personal and organisational arrogance.

The bigger failures:

• Metro wi-fi network that didn’t meet the needs of its users

• Rural wireless product that had massive functional issues

• Metro wireless Ethernet product that was expensive and based on dated technology

• The KorKor network - inferior coverage to TeamTalk and inferior technology to Telecom’s XT

• AIS network - too little, too late and too expensive for many harbourmasters and port companies

• OptiKor - might have done well but since handed off to Axin

• A strident bid for the government’s Rural Broadband Initiative that had them partner with Woosh and FX, which featured unbelievable technological claims.

Aside from DTV (and remind me who paid for that) where have they headed in the right direction?

• Offshore contracts - bringing cash back to NZ. Nice work.

• OnKor Wide Area Network Services - a technically excellent product taking advantage of fibre rights held from the Clear days and a microwave network built to move television broadcasts around - complementary to Orcon

• Odyssey - control international transit and you can provide QoS to your customers - nice long term partner to Orcon

• Orcon - a real competitor in the market, but are Kordia committed to it long term?

Keeping in mind that Onkor and Orcon compete against Kordia’s wholesale clients, and Odyssey is most useful as a part of that ecosystem, here’s some strategy:

1. Package Orcon, OnKor, and Odyssey up and divest them. Stop competing with the best potential customers of your huge (and maybe overvalued) asset base.

2. Go to Vodafone, Telecom, and 2degrees, JDA, local councils and other tower owners, hat in hand, and say ‘hey guys, we know we screwed this up a few years ago, but from now on how about we start working together on tower and transmission infrastructure. Oh, and LTE with its 700MHz rural towers and high density 2500MHz urban microcell requirements might be a great time to start.’

That would be a good day for Kordia, and its owners, the people of New Zealand.

- Jon Brewer, industry commentator

With the advent of off-shore cloud computing and New Zealand’s business sector being increasingly reliant on international connectivity of the internet and communications networks, it is essential we have surety of international connectivity, so at some point, a secure back up to the fibre feed we already have to Australia makes sense.

So does competition and we are seeing the value of that with open access fibre networks like those operating under the UFB initiative.

Anything that will add value to our economy has to be considered positive.

- Steve Macmillian, Northpower

Kordia needed to reinvent itself after the failure of the Extend Network programme under Project Probe and I was curious to see it buy Orcon. It always seemed an odd fit and I wouldn’t be at all surprised if Kordia didn’t look to sell Orcon in the coming months.

Having said that, I don’t think that would be the end of Kordia’s role in the market – far from it. Kordia plays a key role in the mobile sector in terms of co-location and also tower build capability. Its role in the trans-Tasman cable build could very well be re-activated and with some investment from its parent [the Crown] we could see Kordia becoming heavily involved in the industry albeit behind the scenes.

- TUANZ CEO Paul Brislen

Kordia provides a potentially good vehicle for the government to at least part-fund a new international cable option without it being seen as a political about-face.

I don’t think the government is really so naïve that they don’t understand the need for a second cable provider, however there are political ramifications of funding an option now, especially after refusing to significantly contribute to Pacific Fibre.

There are a couple of approaches in relation to Orcon. The first is, the ISP market is a successful competitive market. Given that government by definition should only get involved when the market is unable to deliver, and the current government’s appetite to sell down its ownership in companies in return for lower debt, I suspect there’s a big question mark over Orcon’s future. Alternatively government might see it as strategic in terms of pushing for adoption of UFB, in the same way government uses KiwiBank as a means of ensuring competition in the banking market.

But whatever happens, I doubt we’ll see Kordia continue in its current form.

- Institute of IT Professionals CEO Paul Matthews

The core business of Kordia has changed considerably over the last few years and this has required significant evolution for survival. However, the purchase of Orcon has never felt like the right fit for a SOE based on the competitive market dynamics that exist and the various regulatory bodies that play a critical role.

On the basis that the Kordia business is performing well, particiualrly in Australia, this seems like an opportune time to sell all or most of the business. The only exception might be the legacy transmission towers given the potential challenges associated with the sale of these assets. A full or partial sale of the Kordia business makes practical sense given it does not appear to be part of the government’s mandate and the current performance should result in maximum returns. This must be the key objective from the government’s perspective at this time.

If the Kordia business was to remain government owned, the strategic focus must be on infrastructure investments that deliver both social and economic benefits to all Kiwis throughout the country. Unfortunately the unsuccessful bid for the Rural Broadband Initiative is a good example of where Kordia should have evolved, but the muscle of the incumbents won again.

With the recent announcement regarding Pacific Fibre, this is another area of investment that must be a serious consideration for the government or the new Kordia - this would not only benefit all Kiwis, but it would ensure the ultimate success of the Ultra-Fast Broadband (UFB) initiative. The most effective way to achieve this is through supporting, contributing or underwriting the Pacific Fibre efforts. But, time is of the essence and the clock has already started.

- CallPlus/Slingshot CEO Mark Callander

Vodafone, Telecom, Chorus, UltraFast Fibre, REANNZ, Enable Networks, Snap Internet and FX Networks were approached by Computerworld for comment but either declined to comment or did not reply.

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