End to Telecom's Australian adventure

Telecom yesterday drew a line under its disastrous adventure in Australia, saying AAPT, bought for A$2.3 billion, was now worth just A$628 million.

The writedown knocked the behemoth into its first loss in 14 quarters and set in stone a loss on the investment of at the very least A$1.7 billion. And this excludes the opportunity cost if the cash had been gainfully employed.

It is a huge sum and there is little good to be said about it - except, of course, that having made the writedown Telecom can put AAPT behind it.

The Australian company is still not performing well. Sales were patchy and earnings were weak as tough competition and spending delays by major customers hit.

But that hardly matters. The business is for sale and, by writing the asset down, Telecom has sent a clear signal about the sort of offer it wants.

If it sells for more than book value, management will gain a salve for their battered egos. Even if the sale falters, the potential for disappointment has been curtailed as its value now matches market valuations.

Investors can turn their attention to the core New Zealand business, which appears to be going well.

Declines in its traditional line rental and call revenues were more than offset by growth in new business; mobile, information technology services and the internet.

Mobile growth was outstanding. More important, December quarter mobile data revenue - the future of the mobile business - was up by 64 per cent on the prior year.

Broadband, or high speed internet, was also strong. But the broadband growth, however, also carries a real risk - the threat of regulation.

Telecom fell 20,000 short of a promise to sign up 83,000 subscribers through resellers of its wholesale service. The failure comes at a time when the Government is becoming less tolerant of its antics.

Somewhat belatedly it has recognised the problem, signing up almost half of all new connections in the latest quarter through third parties. Also it has promised to publish a charter setting out commitments on wholesale service delivery and a promise to ensure its retail offers can be matched by rivals.

But, it is not clear this will be enough. Communications Minister David Cunliffe for one was not impressed about the failure. "We have barely kept up with the OECD average. That just shows as a country we need to show another gear."

With broadband services and line rentals now representing a third of local sales, the consequences for shareholders could be dire, even if the country at large would benefit.