Between the lines: SingTel a runaway favourite for Optus

Singapore Telecom remains the clear favourite in the first bidding round for Cable & Wireless Optus, although second-favourite New Zealand Telecom is not entirely out of the picture.

Preliminary acquisition bids were submitted this week, with Singapore Telecom, Vodafone and Telecom NZ among the known hopefuls, say analysts.

Word is that if indicative bids were not in by Wednesday they would not be accepted.

C&W Optus held an analysts' briefing on its mobile-phone business but was keeping mum on the broader sale.

Vodafone was reportedly getting in early by meeting the Australian Competition and Consumer Commission yesterday, but its argument will have to be pretty convincing if it wants to take all of Optus.

Commission chairman Professor Alan Fels has made it clear he would not approve an outright bid by Vodafone for Optus' cellphone business.

While financing is a non-issue for SingTel, which has about $US4 billion ($9.1 billion) in cash and can easily gear up, it remains the major concern for Telecom.

The general feeling among analysts is that Optus favours a cash bid for the assets, which Telecom could still manage if it found either a white knight or was to combine with, say, Singtel.

UBS Warburg has taken an interesting approach to the probabilities, allocating a possible 100 points to the issues at stake, including the bidders having no competition issues (worth a total 40 points), no funding issues (30 points), a high cash offer (20 points) and meeting the requirements of the Foreign Investment Review Board (10 points).

On a lone bid, Telecom comes last with a total 30 points.

Even if it finds the cash, it loses points in trying to satisfy the commission.

Singtel comes out trumps, scoring the maximum 100 points.

A combined Telecom/SingTel bid is the third-favoured option, scoring 80 points out of 100, with the commission again being the main stumbling block.

According to UBS, apart from wholesale capacity arrangements, SingTel does not have an active presence in the Australian market that would give the commission cause for concern.

Of all the potential bidders, it would have few, if any, issues in this regard.

Given the commission's negative response to Optus' offer for AAPT in 1999, and as Telecom owns 100 per cent of AAPT, a reverse scenario for the New Zealand company would not receive a smooth passage through the Australian regulator, according to UBS.

Any submission would probably require further restructuring of a combined entity, including the sale of the Optus Data and Consumer business.

UBS believes the same issue would hamper any combined SingTel/Telecom combined offer, although it is not regarded as insurmountable.

The clock has definitely started ticking on the sale process.