Telecom rings changes for Aussie offshoot

Marko Bogoievski

Telecom will hold discussions next year with other telecommunications companies about selling or entering into partnerships with its underperforming Australian AAPT subsidiary.

The company said yesterday it would begin a formal evaluation process of its ailing AAPT unit late next month and the process would take "some weeks to complete".

"As yet no formal proposals have been tabled, but the level of interest has been such that the best way forward is through a formal process of engagement," said chief financial officer Marko Bogoievski.

Analysts said Telecom was trying to create "competitive tension" in Australia with the announcement.

Telecom has said in the past that several parties have broached a sale of the unit or an alliance with it. The review - the first time the company has put a timeline on its discussions - would consider which strategies could best enhance shareholder value.

Forsyth Barr analyst Jeremy Simpson said Telecom was sending a signal to the market that it had a range of options with AAPT and that there was reasonable interest in it.

"They're trying to create a bit of competitive tension."

ABN Amro analyst David Boyce said the announcement was "formalising" what Telecom had already been doing.

Telecom confirmed in October after speculation in the Australian media that it had been approached by several parties regarding possible deals, but declined to say which ones.

It is understood the formal discussions in January will be with other players in the Australian market, including telcos Optus and SP Telemedia, and telco services firm Commander Communications.

All had recently approached Telecom about either buying AAPT or forming a partnership, a source said.

Industry watchers have pegged Optus, owned by Singapore Telecommunications, as the likeliest buyer. A bid by Optus to buy AAPT in 1999 was blocked by the Australian anti-monopolies authority. An Optus spokeswoman declined to comment.

Analysts agreed it was unlikely Telecom would sell AAPT outright as the company needed to maintain an Australian presence to cater to transtasman customers such as Lion Nathan, Goodman Fielder and Woolworths.

"I think it's quite unlikely that they would sell no strings attached," Boyce said.

Last month, Telecom reported first-quarter revenue of A$296 million ($316.7 million) for its Australian businesses, including AAPT, down 9 per cent. AAPT's book value is A$1.35 billion, but analysts have estimated it may be worth less than half that.

The Australian unit is facing a tough competitive environment, as well as some potentially unfavourable regulatory decisions.

Australian Communications Minister Helen Coonan said this week the Government might step in to prevent an upcoming ruling by the competition regulator from going against Telstra.

The country's top telco is seeking to raise the rates it charges rivals, such as AAPT, to access its phone network.

A Telecom spokesman said there was no direct link between review plans and Coonan's comments.

Simpson agreed and said Telecom had been negotiating with Telstra for months and knew the company would be playing "harder ball".

Telecom confirmed that it would seek to continue its transtasman presence, regardless of any deal.

"Any arrangement we entered into would have to allow us to continue to do that," the spokesman said.

Telecom shares climbed 10c to $5.71 yesterday.