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Telecom New Zealand is edging closer to Vodafone in Australia as it struggles to pull back Vodafone's New Zealand operation.
Telecom is a 10 per cent shareholder of the Australian company Hutchison Telecommunications, which announced yesterday it was merging into a 50/50 joint venture with Vodafone Australia.
Vodafone Australia also has an agreement to work with Telecom's Australian subsidiary - AAPT.
In December Telecom said it was committed to its Australian subsidiary despite reports that Asian company Pacnet was interested in buying the business.
Telecom is a minority shareholder in Hutchison but has a representative on the board. It would not discuss the implications of the Australian merger.
The merger will not have an effect on the New Zealand market, but it is a signal of change in the mobile arena as smaller companies merge to take on the big players.
In Australia, Vodafone is much weaker and is a distant third-ranked operator after Telstra and Optus, followed by the Hutchison 3 brand.
The new company, to be named VHA, will market its products and services under the existing Vodafone brand, and retain the exclusive rights to the 3 brand.
Vodafone will receive a deferred payment of $644 million from VHA to equalise the value difference between the merging companies.
Analysts say the merger makes sense. The combined company will have approximately six million customers and a combined total revenue of about $5 billion.
VHA will have at least 95 per cent coverage of the population, 63 per cent of which will have access to 3G services, the companies said.
As Telecom edges towards Vodafone Australia, Telecom chief executive Paul Reynolds will this week be telling shareholders how the company is beating off Vodafone's challenge in its home market.
Reynolds will be releasing financial results for the six months to December 31 on Friday.
Telecom is trying to catch up with Vodafone, replacing old mobile phone technology with a new 3G network from June. Consumers are waiting for the option of a third mobile phone player with the launch of the New Zealand Communication network later this year.
Analysts say they are not expecting any nightmares from the Friday the 13th interim result announcement.
Forsyth Barr's Guy Hallwright said that until Telecom launched its new mobile phone network it was unlikely to show any gains.
Another analyst expected that another factor affecting Telecom's growth - the shift of people from dial-up internet to broadband - was expected to have slowed.
While telcos were not susceptible to the economic downturn they were also not immune from it, said IDC analyst Rosalie Nelson.
Meanwhile, it was not clear whether the Government would implement plans for a $1.5 billion taxpayer fund for the rollout of fibre-optic cables to homes allowing super-fast internet.
"I imagine that they could say a lot of things have changed in the economy since that was put forward."
Telecom eased 1c to $2.69 yesterday, having risen 17.5 per cent this year. In comparison, the benchmark NZX-50 has gained 0.8 per cent.
