AAPT's retreat worries analysts

By PETER GRIFFIN

AAPT's pullout from the residential call market across the Tasman has left analysts wondering if the Telecom-owned phone company has a solid future.

The third-ranked Australian telco said the decision was made because of "discriminatory behaviour" from market leader Telstra that meant AAPT could not make money out of reselling Telstra's local call services.

Negotiations with Telstra over wholesale rates have been going on since September 1999.

Of the $1.75 billion AAPT made in the year to June, about 70 per cent was paid to Telstra for access.

AAPT has more than 600,000 residential local call customers, and many analysts see strength in the market as important to its success.

Telco analyst Paul Budde said AAPT had misjudged the pace of regulatory change in Australia and would have to pursue a selective strategy despite its parent, Telecom, having national carrier ambitions.

"Telecom's line of business is being a national telecoms operator. There's a different culture and business model," he said.

"AAPT thought that if they could hang on for a couple of years at very low margins, finally the regulator would step in and come up with a better price."

But Mark McDonnell, an analyst at Burdett Buckeridge Young, said that regulatory headaches aside, Telecom faced inherent problems in the structure of AAPT.

"The problem is [Telecom] has bought a carrier that is very reliant on both Telstra and Optus for call completion. The core problem is not regulatory."

Telstra's move to invest in a New Zealand network build through TelstraSaturn, he added, might be aimed at winning share off Telecom and hindering its ability to expand on Telstra's home turf.

Telstra moved this weak to take up a $A150 million ($182.8 million) financing commitment from Austar, its partner in TelstraSaturn.

Telstra may also buy Austar's 50 per cent stake at the end of the 2004 financial year.

AAPT spokeswoman Jessamy Mahoney said the company's residential customer base could continue to grow. High-use customers signing up for its long-distance services might be offered local calling.

Scaling back residential services would not cause job losses, she said.

ABN Amro analyst Malcolm Davie said AAPT still had good growth potential.

"The demise of the Optus acquisition strategy really meant that AAPT was always destined to be a niche operator."