TelstraSaturn set to court Sky TV

By KARYN SCHERER

Telecommunications company TelstraSaturn is believed to be keen to sell its pay-television business to rival Sky TV.

The company, which wants to be seen as a key player in New Zealand, is understood to have begun high-level talks with Sky executives, behind the back of its jilted partner, TVNZ.

TelstraSaturn favours a trade-off with Sky that would involve exiting pay-TV in return for becoming Sky's preferred telecommunications partner.

The plan is likely to cause friction at board level, with Telecom also trying to develop a relationship with Sky by buying a stake in the company.

TelstraSaturn yesterday told staff it was pulling the plug on a joint venture with TVNZ that would have extended its 26-channel Wellington and Christchurch cable-TV service nationwide, by sub-leasing space TVNZ has bought on the Optus satellite.

Millions of dollars are believed to have been spent on the venture, but TelstraSaturn told staff that due to "much more aggressive activity from Telecom in particular" it has decided to focus on its core markets.

In an internal memo, the company said it had been "pursuing other opportunities with various players" that would better position it in the New Zealand market and "avoid unnecessary duplication and infrastructure".

TelstraSaturn said it had not yet had the chance to "fully explore" such opportunities, but the Business Herald understands it has already begun courting Sky chairman Tom Mockridge.

Industry insiders have speculated that TelstraSaturn always wanted to form a partnership with Sky, and signing a deal with TVNZ was a strategic move it hoped would force Sky to negotiate.

But the decision is also likely to have been sparked by concerns that its Australian part-owner, Austar United, is struggling across the Tasman.

The Australian company said yesterday that it had spent $A71 million ($87 million) more than it received from customers in the three months to June 30.

If it continues at that rate, it will run out of cash by the end of next year.

In March, TelstraSaturn revealed that it made an operating loss of $117 million on revenue of $127 million last year.

Yesterday, Austar confirmed that it would borrow $A150 million more from banks to help finance its New Zealand expansion plans.

"The funds will be used to get the existing businesses to a cashflow break-even point, which we expect will be in 2004," said spokesman Bruce Meagher.

While TelstraSaturn intends to continue expanding its cable service to Christchurch and Auckland, it has stressed to staff that the business market is crucial to its success.

At the end of last year, it had 32,000 residential telephone customers in Wellington, as well as 1500 business clients, 21,000 pay-TV subscribers and 45,000 internet subscribers.

But several issues remain up in the air, including how it will extract itself from the deal with TVNZ to sub-lease the satellite space.

The legal position of three companies contracted to install the digital service - GDC, Downer Connect and Strongline - is also unclear.

TelstraSaturn may be forced to compensate the companies, on top of the money it has already spent on the venture.

The company is believed to have been ready to launch the service with TVNZ, and has told staff it could still go ahead if the Sky proposal falls over.