Vocus Communications, the Australian fibre network and datacentre company, has entered into an agreement with kiwi telco Spark New Zealand to form a new construction joint venture, Connect 8.

Under the joint venture deal, Spark will acquire half of Connect 8 for an upfront cash payment and an agreed level of annual construction spend while Vocus will also put up an agreed level of annual construction spent to the joint venture. The amounts weren’t disclosed.

After an initial start up period, Connect 8 is expected to have an annual committed revenue pipeline of between $15 million and $17 million and will continue to build fibre and telecommunications assets for Vocus, Spark New Zealand and other New Zealand clients, Vocus said in a statement to the ASX today.

Spark chief operating officer David Havercroft said the joint venture puts Spark in an even better position to help New Zealand businesses navigate a digital future in which fibre will become increasingly important.

“Spark New Zealand already has 8000 kilometres of fibre cable in New Zealand. This, paired with the Optical Transmission Network (OTN), the core data transport network, onnects more cities, exchanges and data centres than any other network provider in the country, ” he said.

The ASX listed Vocus describes itself as the leading independent provider of wholesale and telecommunication services in Australia and New Zealand, providing internet, fibre and ethernet, and data centre services.

Vocus chief executive James Spencely said the joint venture and its committed pipeline will help smooth out earnings volatility from its construction division.

The Vocus New Zealand construction division was acquired as part of its $115 million purchase last year of fibre line provider FX Networks, which owns a national 4132 kilometre inter city fibre internet network and had annual revenue of more than $50 million and more than 3,000 clients.

The construction division has average annual revenues of $11 million and Ebitda of around $3 million, although with significant volatility, Vocus said.

As a result of the joint venture, the construction division’s first half Ebitda contribution of $1.5 million won’t be realised, Vocus said, although it expects ongoing baseline annual Ebitda from the joint venture of $2.3 million from its first full financial year.
Vocus Communications and Spark New Zealand will be equally represented on the Connect 8 board and receive equal distributions of profits.