Vodafone has bought TelstraClear, New Zealand’s second-largest fixed operator, and plans to merge it with its local mobile arm to mount a significant challenge to the country’s incumbent operator, Telecom New Zealand. 

The UK-based firm said in a statement it will pay NZD840 million (US$670 million) in cash for TelstraClear to its Australian owner, Telstra, in a deal expected to be wrapped-up by the end of the year.

“The acquisition of TelstraClear will strengthen Vodafone New Zealand’s portfolio of fixed communications solutions and create a leading total communications company,” said Vodafone in a statement.

Vodafone New Zealand is the country’s largest mobile operator with an estimated 2.4 million mobile connections as of Q1 2012, ahead of Telecom NZ on 2 million.

Meanwhile, TelstraClear owns New Zealand’s second-largest fixed infrastructure, which includes a 6,600km fibre backbone connecting 19 of the country’s largest cities, a local access network with 2,000km of fibre and 4,500km of copper and a cable TV and broadband access network passing 150,000 homes in Wellington and Christchurch.

Vodafone noted also that government-backed plans to roll-out a wholesale fibre access network to 75 percent of New Zealanders by 2019 “will allow Vodafone New Zealand to purchase last mile wholesale access outside of TelstraClear’s existing footprint on equal terms with Telecom New Zealand.”

Although the deal marks the exit of Telstra from the country, it is speculated that the divestiture could trigger a move by the Australian-based giant to make a bid for Telecom NZ – a deal which would almost certainly be blocked if Telstra still owned TelstraClear.
 
"Telecom would have a very, very difficult time moving forward with a strengthened Vodafone. That may further build the case for an integration of Telecom NZ and Telstra," Australia-based telecoms consultant Paul Budde told Reuters.

The final price paid by Vodafone is significantly higher than many had anticipated. However, the UK firm said the deal met its “strict M&A criteria” and said the unit is expected to be accretive to the group's earnings per share from year two and free cash flow per share from year one, after synergies and integration costs.