Telco's shares jump on the hopes of sale

Telecom has been approached by buyers for its AAPT Australian business but says it is not actively looking to offload the struggling division.

The country's largest listed company said it had also been approached about AAPT forming a business alliance.

"We have been approached," said Philip King, Telecom's general manager of communications.

"It hasn't been placed on the market, but different parties have approached us about doing different things in Australia."

King said Telecom remained committed to its Australian operations, but added: "We remain open to consider alternatives as and when they arise."

Telecom shares rose 13c yesterday to $6.07 after the news as investors welcomed the possibility of a sale.

A report in the Australian press yesterday cited Optus or Vodafone as possible buyers.

Optus would not comment on the speculation, while Vodafone officials could not be reached.

The report suggested new Telstra chief executive Solomon Trujillo had sent signals that he intended to scale back the company's wholesale operations as part of his strategic review, to be released mid-November.

It said those overtures had prompted Telecom to once again review its AAPT business.

But Telecom rejected reports of a new review. King said Telecom assessed AAPT at the end of last year and subsequently recommitted to it with additional capital expenditure of $140 million, plus $20 million for restructuring of its consumer division.

"What you have at the moment is some aggressive public rhetoric around [Telstra's] stance towards competitors, which you'd have to be blind, deaf and dumb to not have heard and seen for the last two months," he said.

"We have not changed our mind about Australia as a result of any flag changes in the regulatory or wholesaling regime in that market."

Analysts said the speculation over an AAPT sale was nothing new, since the division had been underperforming since Telecom bought it in 1999 for $2.2 billion after a bidding war with Cable & Wireless Optus.

AAPT offers voice, data and internet services to business customers, and primarily resold fixed-line phone services to residential consumers.

To the year ended June 30, the unit's overall revenue declined 1.2 per cent to A$601 million ($652 million), while profit was only A$3 million, down from A$19 million a year earlier. Telecom wrote down the value of the business to $1.5 billion in 2002, but most analysts peg it with a much lower value - half that at most.

Analysts said a complete sale of the unit was unlikely since the ability to offer transtasman services to businesses was too appealing to give up.

"They do have a number of large customers in Australia who would make the sale of the business division quite difficult," an analyst said.

However, another analyst said: "Where there's smoke, there's a bit of fire ... the revenue would be quite attractive to someone like Optus.

"If someone with more of a network can get hold of it, they could probably increase the margin that they're generating."

Regulatory uncertainty and its effect on Telstra is also likely to weigh on any possible AAPT sale.