Telecom will offload AAPT once regulator fixes prices, analysts say

Telecom will probably sell its struggling Australian subsidiary AAPT once there is more regulatory certainty over wholesale access prices, say analysts.

Late last year Telecom put the business up for sale but in August it said it had decided to hold on to the asset to serve its New Zealand customers who travelled to Australia.

AAPT has suffered a substantial decline in margins over the past year, which Telecom said had been driven by a rise in wholesale prices across all products from its wholesale supplier Telstra.

AAPT is awaiting a decision from Australia's competition watchdog on wholesale pricing on Telstra's copper-wire line network, which would determine its future profitability.

ASB Securities head of research David Boyce said, once there was more certainty around pricing, then Telecom would be in a better position to sell AAPT.

The subsidiary was one of the most vulnerable to wholesale charges because it mainly resold services via access to Telstra's network, rather than investing in its own network, said Boyce.

This meant now was the "worst possible time" for Telecom to sell the business, he said.

The regulatory decision was weighing on Telecom's ability to sell AAPT to potential buyers such as Singtel, Boyce said. Telecom's decision, announced at its latest results in August, to invest $120 million into AAPT was a sensible strategic move.

"If they stop investing they will lose those customers to other providers. Then the business is worthless."

Australia-based ABN Amro analyst Ian Martin said the broadband land-grab in Australia now meant that companies required scale to compete effectively.

"It is either a matter of Telecom selling the business to a company with scale such as Optus or investing to build up that scale and keep more of the revenue on their network."

Telecom has written off $1.165 billion from AAPT's value in less than a year, dropping its value to $270 million. Telecom chief executive Theresa Gattung said at the company's annual general meeting on Thursday that it would announce a restructure of AAPT's consumer business in November, but yesterday the company did not wish to comment on AAPT.

Gattung defended Telecom's decision to hold on to AAPT, saying the company needed a presence in Australia to service New Zealand customers.

"Whether we like it or not, New Zealand does tend to be part of a bigger Australasian economy and many New Zealand companies are part of larger Australian organisation," she said.

Telecom's share price closed at $4.19 yesterday, down 8 cents.

Analysts believed a decision on wholesale line rental price would be made by the end of December.