Chaos in One.Tel's wake

By BINA BROWN

SYDNEY - Like nuclear explosions, collapsing companies scatter their fallout far and wide. This week, the poisonous ashes of would-be telecom star One.Tel were drifting on to its biggest shareholder, Kerry Packer's Publishing and Broadcasting.

Email communications at PBL's Sydney headquarters were in tatters as the media giant struggled to switch its internet business from One.Tel to Telstra.

PBL chairman James Packer and News Corp's Lachlan Murdoch had already lost around $A1 billion between them on One.Tel as they prepared to inject a further $A132 million in emergency funds, via a rights issue, to keep the company afloat.

Instead, they pulled the plug last week and One.Tel was placed in administration with debts of $A600 million.

In Melbourne yesterday, the company's 1400 staff worked their last day.

The collapse is the latest to send shockwaves through the investment community, coming just a week after the $A4 billion implosion of HIH Insurance and the demise of Impulse Airlines.



Just how bad the situation was at One.Tel is a point of contention - figures prepared for the board of directors were markedly different to those given to shareholders.

Briefing papers prepared for a board meeting on January 25 indicated One.Tel would post an operating profit for the six months to June of $A41 million, yet investors were told seven days later the figure would be $A10 million.

At the centre of the collapse, which has left more than 3000 creditors owed about $A600 million, are former joint managing directors Jodee Rich and Brad Keeling.

Mr Rich and Mr Keeling were sacked from One.Tel on May 17, just days before the arrival of the administrators, amid a cloud of criticism over bonus payments of $A6.9 million each.

The payments, made last year, coincided with the company's reporting a $A291 million loss.

Mr Rich has since offered to repay the bonus, less tax, and relinquish his 500 million One.Tel shares, on the condition he sells his $A14 million harbourside mansion in Sydney.

The offer also hinges on creditors accepting his proposed deed of arrangement, being considered by the administrator, which includes a guarantee of his not being prosecuted.

Mr Keeling also offered to pay up to $A3.5 million towards the $A19 million owed to One.Tel workers, but only if the sale of the company's assets fail to cover their outstanding entitlements.

That is looking increasingly unlikely, although a fire sale of the assets is already under way to raise the funds owed first to staff and then to creditors.

Telstra, owed about $A50 million, on Thursday agreed to pay about $A8 million for more than 420,000 One.Tel customers on its Next Generation mobile phone network, long-distance and local phone services.

One.Tel's internet service provider business, One.Net, is considered one of its most lucrative assets, with about 100,000 paying customers, including PBL.



Administrators from Ferrier Hodgson, Steve Sherman and Peter Walker, told a creditors' meeting in Sydney this week that total losses of One.Tel would not be known for some weeks, when the sale of One.Tel assets will be complete.

Latterly, the company was known to be losing $A12 million a week.

Although Sherman had expected to move straight into liquidation of One.Tel, he must now consider the deed of arrangement proposed by Mr Rich.

Meanwhile Lucent, one of One.Tel's biggest creditors - which has spent $A654 million to build a mobile network in Australia's capital cities for One.Tel - has served a $A1.28 billion log of claims on the company's mobile subsidiary company One.Tel Networks Holdings and appointed PricewaterhouseCoopers as receiver to five subsidiaries.



ASIC investigations are well under way, with a particular focus on possible breaches of the Corporations Law.

ASIC is also examining whether One.Tel was allowed to trade while insolvent.

Last month ASIC applied to the NSW Supreme Court to freeze the assets of former HIH directors after the insurance giant collapsed with debts of up to $4 billion.

Former HIH director Rodney Adler, who was also a non-executive director of One.Tel, has already put up $7.7 million in security and surrendered his passport in an undertaking to ASIC.

He said the collapse of One.Tel was most disturbing and intriguing.

"When John Greaves, the chairman, and I left the board, on the information we had, everything was on track to meet the projections that had been announced to the market.

"However, it does appear quite clear now that the major shareholders, in particular PBL and Newscorp, who were the capital support of the business, were not kept up to date to the level to their satisfaction.

"When they were asked for some funds to keep the business afloat they decided they had enough, and were concerned about the future and therefore denied access to that cash chest."

According to Mr Adler, "One.Tel was an excellent marketing company but it was up against Telstra, Optus and Vodafone. "Even though One.Tel outperformed Hutchison and Telecom New Zealand, the reality is that these two other companies were, and are, much better capitalised."