Between the lines: Optus optimism not whole story

Nature abhors a vacuum, a principle that has been well demonstrated in the succession of tantalising leaks that have filled the place of hard information as Cable & Wireless sells its Australian business, Cable & Wireless Optus.

Although not officially confirmed, it seems Vodafone and Singapore Telecom will be there when initial bids are lodged on Wednesday. And we know for a fact that Telecom is interested, because it has said so. Furthermore, it has said it can get the bank backing it needs to take over the business.

But these are very early days. On the face of it, Telecom looks to be in the weakest position. While its finance director, Pat Duignan, put his hand on his heart in declaring that Telecom could raise the money to buy the company, he was perhaps telling only part of the story.

Any acquisition by Telecom is bound to be messy, as nobody believes that it can manage the $A14 billion ($17.4 billion) acquisition on its own.

Furthermore, the common assumption that Cable & Wireless actually wants to sell only the retail parts of the business, such as mobile, while keeping control of the data and corporate services, could well turn out to be wrong.

While a breakup would suit Telecom, there are compelling reasons for Cable & Wireless to sell the entire company. If it sells part, it could be landed with a pile of capital gains taxes, and an entire sale may be the only way to square off the interests of Optus' minority shareholders, who own 43 per cent of the company.

If so, Telecom could easily lose out to SingTel, which may well find an integrated business completely to its taste, while there is little doubt that Vodafone would happily pay a premium price to gobble up the whole business and sell the bits it doesn't want at its leisure.

But that is not the end of the game for Telecom. While Vodafone would just love Optus mobile, it faces enormous resistance from Australia's competition regulator, which has already made it plain it does not like the idea of Australia's number two merging with the number three.

That may prove insuperable. And while SingTel has the cash, it may in the end turn out to be simply kicking tyres, given that the valuations per customer put on Optus mobile are around double those for growth assets in Asia.

What is beyond doubt is that Telecom needs a partner. That might turn out to be the Japanese mobile operator DoCoMo, or even SingTel itself.

Another possibility is that Cable & Wireless itself might retain a stake until a public float.

Whatever the outcome, it seems likely that Telecom would fold its existing mobile businesses into Optus while selling off unwanted assets.

Intriguingly, those divestments would probably include Optus' residential cable television and telephony network, presumably after securing access to the telephone business on appropriate terms.

Whatever emerges, there is a good chance that Telecom would be the junior partner. Indeed, it could turn out that it is Telecom that is as much for sale as Optus.