big selling, page-7

re: big selling/bounce soon Hi Blokes,

In looking at HTA's share price it pays to revisit those occasions from the past when HTA has made significant announcements to the market. On each of those occasions, there has been heavy intra-day tradicng and price volatility (often with the share price rising upwards of 20-25%, only then to fall back to or below the previous day's closing).

The movements since Wednesday have closely followed the previous trends of past announcements.

The significance this time round is that the market is still trying to determine to what extent the deal is good for HTA.

On balance, the debt overhang issue has been dealt with. So too the market certainty of 3G, and the demand momentum going forward (ie: building a viable 3G business).

What, however, is not so clear cut is whether Telstra paid too much or too little for its half share.

In an earlier post, I reflected on the likely CAPEX commitments having exceeded $1.0B to date (forget the OPEX /start-up /handset costs - I'm referring here specifically to the licensing costs, the infrastructure development costs of base stations, billing management platforms, transport layers, the Cisco supplies, the Optus backhaul arrangements, site acquisition costs even adjusted for the OneTel acquistions, etc).

On balance, these costs have exceeded $1.0B to date, so unless anyone is mistaken, Telstra has acquired a half share of the network at an effective 20-30% discount to network replacement cost. On that basis, HTA has likely come off 2nd best. However, given the additional leverage that now comes with Telstra financing most of the future backfill (ie: additional network coverage in the metro footprint areas, and the regionalisation of 3G to major regional areas, including Canberra), it could be argued that Telstra has actually paid a figure closer to neutral or par value.

This is the difficult thing.

The market is now speculating that HTA sold down its interest due to debt /cash-flow pressure (etc) without adequately factoring in for the HWL (Hong Kong) resources of the Group. In reality, HTA has mitigated its future 3G execution risk and ensured that as network demand increases, the future costs of network upgrades (etc) which are likely required by mid-2006 will be met now, in the main, by Telstra.

The deal is still a good one for HTA and accords with Whampoa's global investment /risk mitigation strategy. What concerns the local market, however, is the limited visibility that all this provides in terms of useful financial insight into HTA. On this score, I am still trying to do my own claculations.

But one thing's for certain, the sort of competition structure that I have been advocating for the last 3 years is starting to come to fruition. It's just that Telstra was not my preferred choice for that.

In due course, it would not surprise to see H3GA separated out to become NETCO (or NETWORKCO) in a similar style to how the 3G operators have come together to own common infrastructure in Sweden (particularly in the metro areas) whilst building out separately their requirements in the regional areas.

I intend doing some more analysis over the weekend. Meantime, I have to get back to work and to what's happening in SLX and in the NAB.