Australian telco to invest US$157 million in Asia

SYDNEY - Telstra Corp Ltd announced in Sydney today it would invest US$157 million ($170.33 million) in its Asian joint venture REACH Ltd.

Telstra's joint venture partner, Hong Kong telco PCCW Ltd, will also invest US$157 million in REACH, as part of further operation model improvements in the undersea cable.

Telstra will pay its part by way of a discharge of REACH's liabilities under the capacity prepayment agreement.

Both companies have also committed to fund a half of REACH's committed capital expenditure up to 2022, for about US$106 million each.

Dedicated components of REACH's international cable capacity have been allocated to both telcos and REACH will also manage allocated capacity and provide Telstra and PCCW with outsourced and other services including data and voice.

Both telcos will also each pay REACH an outsourcing fee on a cost-plus mark up basis and satellite services will be purchased at market rates.

REACH will continue its profitable third party voice and satellite business and Telstra also said it may fund and acquire further required cable capacity for management by REACH, as part of the outsourcing arrangements.

Telstra chief financial officer John Stanhope said today's announcement was a logical conclusion of the telco's quest for improved operational and financial efficiencies in REACH.

"This model is advantageous as it allows the shareholders to own and use allocated capacity in a cost effective manner through REACH exploiting economies of scale," he said.

"It incents the shareholders to maximise the economies of scale through outsourcing services to REACH."

Mr Stanhope said the joint venture had further scope to reduce the shareholder outsourcing fees by continuing to actively and profitably sell voice and satellite services to third party customers.

"By outsourcing the management of capacity to REACH, the shareholders have created a model that could be replicated in the industry," he said.

- AAP