2degrees hires Apple man, lines up funding for 5G upgrade in 2021

Apple’s NZ carrier manager, Zac Summers, has been named 2degrees’ new strategy manager.

Summers has previously had consumer marketing GM and chief strategy officer roles with Vodafone NZ.

With Apple’s release of the 5G-capable iPhone 12, key strategy questions for Summers will include: when to upgrade to the new mobile technology, and how fast.

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The newcomer immediately has something to work with, with 2degrees saying this week that it will launch its first 5G service by the end of next year (Vodafone launched its first 5G mobile service in December 2019, Spark in July this year).

The telco’s 5G rollout should start “by late next year,” corporate affairs director Mat Bolland told the Herald.

2degrees’ immediate issue has been the GCSB sidelining its primary technology partner, Huawei – which has both choked off its cheapest path to upgrading to 5G (sticking with its keenly priced incumbent) and the possibility of vendor-financing from the Chinese giant, which was the most obvious source of funding an upgrade.

The government has already come to the party by cancelling its 5G auction in favour of directly-allocating 5G spectrum at low-cost (albeit on a temporary basis; a full-blooded auction will follow toward the end of next year when it’s anticipated an iwi claim on airwaves will be settled).

And yesterday, 2degrees’ majority owner, Toronto-listed Trilogy International Partners, said Trilogy International South Pacific (TISP) – the vehicle through which it owns its controlling interest in the Kiwi telco – had issued US$50m ($70.3m) in senior secured notes.

The notes bear interest at 10 per cent per annum and mature on May 1, 2022, a Trilogy filing says.

The purchasers of the senor notes included Trilogy founder and chairman John Stanton – the billionaire telco industry veteran who also sits on the boards of Microsoft and retail giant Costco).

Trilogy’s filing doesn’t explicitly earmark the new funds for 2degrees 5G upgrade, but does strongly hint that, saying, “With our solid foundation in New Zealand, this additional liquidity allows us to invest in growth initiatives.”

$50m will not be enough to fund a 5G upgrade

And Trilogy, whose other major asset is Bolivian telco NuevaTel – has a debt-load of around US$537m.

Issuing new equity would also be a struggle, with Trilogy stating in an October 6 presentation to a Deutsche Bank conference that its shares had an intrinsic enterprise value of C$3.59 – or more than 200 per cent above the C$1.19 – C$1.22 range where they’ve been trading for months for a market cap of just C$72.1m ($77.2m).

But Trilogy also made another major announcement overnight: its Bolivian business could be going on the block.

NuevaTel has a roughly similar market position and size as 2degrees but faces an often chaotic political landscape.

In its market filing about the new debt, Trilogy also says it has secured consent from existing shareholders to sell its stake in NeuvaTel for cash and stock.

The Herald understands proceeds from a NeuvaTel sale – or at least part of it – would also help fund 2degrees mobile upgrade.

A 2degrees insider told the Herald that NuevaTel had been a drag on Trilogy, with its relatively poor performance amid political instability scuppering plans for an NZX listing.

As a business unit, 2degrees has been in the black for several years.

Its pre-tax profit rose 46% to $28.6 million for its 2019 financial year – which coincides with the calendar year. Statutory net profit was $86.3m thanks to a $57.6m tax credit on previous years’ tax loses.

Ebitda was up 12 per cent to $147.5m.

Service revenue increased 4.5 per cent to $512m, but overall revenue dropped 9.7 per cent to $727.8m as a low-margin exclusive handset deal with Noel Leeming was phased out.

In March, as the above results were filed, 2degrees chief executive Mark Aue made his first comments about a possible shift from Huawei.

“I’ve been on the record a number of times saying this [5G] is not needed tomorrow,” Aue says, “But we’ve been assessing vendors and acquiring sites. And now that we’ve got some spectrum you can expect to hear more about our plans over the coming months.”

This week, there have been more signs of a change, with Huawei’s local operation announcing a shift in focus to business-to-business communications products and solar energy products (new to its NZ line up, but a major line of business for the Chinese company globally).

2degrees has yet to name a new partner or partners, however, or which areas will be the focus of its initial 5G rollout.

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