Telcos in $435m merger

By PETER GRIFFIN

The country's second and third ranked telcos have come together forming a group that even with annual revenues of around $600 million will still rank well behind Telecom.

In a long-expected move, TelstraSaturn will pay $143 million for Clear and take on $270 million in loans which it will pay to BT, Clear's owner. External debt lifts the value of the entire deal to $435 million.

Clear and TelstraSaturn will have 300,000 customers and 11 per cent of the telecoms market, which is estimated to be worth a total of $4.1 billion.

Telstra, which is TelstraSaturn's 50 per cent owner, said capital savings of $100 million over the next five years would be made from merging the two networks along with annual operating savings of $50 million.

Telstra International president Dick Simpson was yesterday tight-lipped about the future make-up of the merged company.

He would not comment on the number of jobs losses expected, or on the future of TelstraSaturn's cable TV business.

He also had little to say about whether TelstraSaturn's $1.1 billion, five-year network expansion would continue.

"Having done the review of the consolidation, we'll then look at where we would need to further experiment and invest," he said.

The purchase still needs approval from the Commerce Commission and the Overseas Investment Commission.

Telstra will raise its stake in TelstraSaturn to 62 per cent with its partner in the venture, Australian pay TV operator Austar, dropping its stake to 38 per cent.

Telecoms analyst Paul Budde said that pointed to the divestment of TelstraSaturn's cable TV business.

"Austar is obviously going to take a back seat," he said. "Its interest was predominantly pay TV. The whole model of pay TV has become a burden."

The merged company is expected to go after business and corporate customers. It lacks a mobile phone network, as both TelstraSaturn and Clear simply resell Vodafone mobile services.

Mr Simpson said that before the purchase, Clear had been talking to fledgling mobile player Econet.

An industry source said Telstra would probably leave the residential market to Telecom and concentrate on winning some of its competitor's top 50 accounts.

The purchase involves management changes, which began yesterday with the departure of TelstraSaturn chief executive Jack Matthews, replaced by Rosemary Howard. It is likely some directors will be replaced by fresh faces from Telstra.

Similar ripples have been sent through the management of Clear. Its chief executive Peter Kaliaropoulos is to quit the company in mid December and will return to BT Ignite's Asia-Pacific operations, in Sydney.

In a memo sent to staff he thanked them for Clear's "best ever results in five years".

"Keep giving those 'bad guys' a hard time in the marketplace, their real nightmare has just begun," he said.

The memo revealed that in October, Clear achieved its best monthly revenue of $31.5 million and highest ebitda (earnings before income tax, earnings and amortisation) of $7.57 million for the year to date.

Its sales had risen 18 per cent in the past year.