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​Farmside signs satellite deal with Optus, but financial troubles remain

Rural broadband internet specialist Farmside opens up improved satellite access through Optus deal.
Timaru, New Zealand

Timaru, New Zealand

Rural broadband internet specialist Farmside has opened up improved satellite access for remote rural communities in New Zealand, through an agreement with Australian telecommunications provider Optus.

Revealed via the New Zealand Stock Exchange, the agreement, which secures superior internet satellite access for New Zealand, stands to benefit up to 25,000 Kiwi homes, farms and businesses located in remote areas, where satellite is the only broadband solution.

Farmside is a subsidiary of NZX-listed New Zealand-owned and operated communications company TeamTalk Ltd, which purchased the Timaru-based company in December 2012.

The deal follows a record share slump for parent company TeamTalk, after the telecommunications network provider downgraded earnings guidance and refused to pay a final divided to shareholders.

“Over the last few years the financial performance of Farmside, our rural focused ISP business, has suffered as customers have moved away from services delivered over satellite to alternative services delivered, in the main, by the Government funded Rural Broadband Initiative (“RBI”) network,” says Roger Sowry, Chairman, TeamTalk Limited.

“This migration has had a material negative impact on earnings with both EBITDA impacted and some additional large non-cash charges as we had to write off the value of the satellite equipment installed at the customer’s premises.

“There has also been a material lift in capital expenditure requirements to fund the new RBI based customer installations.”

In spite of the negative impact on its results however, Sowry says Farmside has been active in migrating its own customer base as part of a customer pledge to provide the most appropriate service for each customer.

“While in many cases that is an RBI service there are still large areas of rural New Zealand where satellite is the most appropriate broadband solution,” he explains.

Sowry says the agreement with Optus is a multi-year contract that will “progressively deliver improved financial results and cash returns” as Farmside will be able to buy satellite bandwidth on “materially better terms” than the current provider with a number of other incentives provided to facilitate the switch.

In the short term however, there will be a negative impact on the financial results of the group.

“The switch involves several million dollars of capital expenditure over the next six or so months as new equipment is installed at several thousand individual premises right across the country and further non-cash charges will arise as existing customer equipment is rendered obsolete and written off accordingly,” Sowry explains.

Despite these short term costs, Sowry believes that Farmside will, from day one, provide a better customer experience, reduced rates of churn and a chance to offer additional services which, in turn, should translate into improved financial results.

“Farmside is the market leader in RBI services and continues to build on that position,” he adds.

“This initiative with Optus complements our RBI market position by enabling Farmside to provide a competitively priced satellite based service, which is materially better than we are currently able to offer, for those tens of thousands of households not in RBI zones.

Farmside General Manager Stuart Cooper believes the agreement will enable the company to provide a faster satellite broadband service to customers throughout the country.

“In those locations where satellite offers the only possible access to the internet, this improved access is a digital lifeline that will deliver increased data caps and improved speeds,” he says.

“Farmside has offered customers in remote areas access to the internet by satellite for a number of years and via this new agreement with Optus, that access will now be markedly upgraded.”

Terms of the deal will see Farmside access Optus’ D2 satellite New Zealand focussed payload, which was launched in 2007 - the satellite is stationed north-west of New Zealand at the 152 degrees East geostationary orbital location.

Cooper says Farmside is using Gateway Teleport’s Satellite Earth Station facilities to provide services on Optus' D2 satellite.

Located in Upper Hutt, Gateway Teleport was incorporated in December 2010 and is New Zealand's largest privately owned and operated Satellite Earth Station, and is located in a seismically stable area, where a major bank has their disaster recovery location in close proximity.

In April, TeamTalk founder and Managing Director David Ware stepped down from the company, citing mounting stress and a lack of enthusiasm for the role.