telecom creeps back into australia

Telecom creeps back into Australia
By TIM HUNTER - Sunday Star Times | Sunday, 18 February 2007



Telecom's new Australian strategy appears to be taking shape amid speculation that its next target is Perth- based telco Amcom.


Another telco, however, is a more likely quarry.

ASX-listed Amcom owns an 800km fibre optic network in Perth, and last month completed a substantial fibre optic installation in Adelaide.

Its network would complement that of Sydney-based PowerTel, subject of a $A320 million takeover bid by Telecom this month, which has fibre networks in Sydney, Melbourne and Brisbane.

Telecom's bid for PowerTel looks likely to succeed. Last week PowerTel shares were trading below the $A2.30 a share bid price, suggesting the market does not expect a rival bidder to emerge, and Telecom is already deemed to hold 58% of the company through its deal with PowerTel's 58% shareholder TVG.

The acquisition is good for Telecom because it gives control of its own destiny, securing access to PowerTel's network and reducing its reliance on buying wholesale services from arch- rival Telstra at high prices, leaving little scope for profitability.

Amcom is a much smaller company than PowerTel, with a market value of about $A100m, but analysts say Telecom would nevertheless prefer to achieve its aims without having to buy the company.

"If they don't have to spend the money I don't think they'd want to," said one analyst.

Amcom CEO Eddy Lee has been at pains to point out that although his company is in talks with Telecom, the subject of merger or acquisition has not come up.

"There has been no discussion between Amcom and Telecom New Zealand about a corporate transaction involving these two parties," he said last week.

Analysts say a more obvious target is iiNet, the second largest broadband supplier in Australia, and Lee's explicit statement clearly allows for discussions on that subject.

While PowerTel owns 18.3% of iiNet, Amcom owns 19.9%, acquired last May when iiNet was in dire straits after downgrading its profit forecasts and admitting poor management controls.

The fact that Telecom did not make a move on iiNet back then suggests it was still undecided what to do after a four month review of its Australian business AAPT failed to find a corporate partner.

Whatever the reason for the delay, iiNet's founder Michael Malone is no obstacle to a deal - he has welcomed Telecom as a major shareholder and is unlikely to stand in the way.

Although declining to comment on whether anyone has sought to buy his stake, he told the Star-Times he would follow his board's recommendation.

"I made a commitment to the market many years ago that I wouldn't use my personal stake to block a sensible offer for iiNet," he said.

"The only thing that really matters about the bidder is whether they have the capacity to pay up on bid."

iiNet has been working closely with Telecom for months - AAPT is its largest wholesale customer - and Malone clearly sees an opportunity for consolidation.

"In the Australian context, a viable third player is a good thing," he said.