iinet to save and keep 10 million from lss

from the west.com.au

IiNet surges on $36m NZ sale, lower phone-line costs
10th October 2006, 10:30 WST

Internet group iiNet rallied sharply yesterday after selling its New Zealand business for about 20 per cent above book value and unveiling a potentially rich victory in its running regulatory battle with Telstra.

Shares in iiNet surged 14¢ to close at 83¢ — their highest level since shortly after the company returned from a six-week trading halt in late May — as analysts tried to work out the potential profit effects of selling iHug for $6 million over book value and having Australian phone-line costs slashed.

On the home front, the Australian Competition and Consumer Commission issued a draft interim determination cutting from $9 to $3.20 the monthly tariff that Telstra can charge iiNet for so-called line sharing.

Line sharing is the service that iiNet uses to send its high-speed broadband service from the advanced broadband transmission devices that it has installed in Telstra exchanges to the homes and businesses of about 115,000 of its customers.

Chief executive Michael Malone said the $3.20 tariff decision — if confirmed or only slightly modified by the ACCC in its final decision — could cut iiNet’s annual line costs by $10 million.

Mr Malone said it was unlikely his group would pass that lower cost on to customers because iiNet’s broadband charges were highly competitive and had taken into account line-sharing charges falling.

He said part of the savings would probably be used to boost marketing of iiNet’s broadband service. “We still can’t seem to get across to people that broadband 50 or 100 times faster than Telstra is a good thing,” he said.

The Perth-based internet group has been hit over the past year by a toughened regulatory attitude from Telstra and profit downgrades. The group was suspended from trading for six weeks while its management revised earnings forecasts and reversed overly optimistic earnings forecasts.

Its suspension coincided with a NZ competition ruling that broke Telecom NZ’s monopoly on providing broadband services from its exchanges.

This prompted several unsolicited offers to iiNet and ultimately a decision to sell the Kiwi business to Vodafone for $36 million.

IiNet is to keep an Auckland call centre as part of the deal.

Neale Prior