ConnecTel sale could net $240m for Telecom

By RICHARD BRADDELL

WELLINGTON - Telecom has pinned a "For Sale" notice to its network design, build and maintenance subsidiary, ConnecTel.

ConnecTel's general manager, Ian Frame, said there had been several expressions of interest in the company so it seemed sensible to formalise the process.

"This does not automatically mean that ConnecTel will be sold," he said.

Until recently, ConnecTel had 1100 staff. But with the completion of North and South Island tenders, it was left with just 40 per cent of Telecom's maintenance, a business it had to itself until it was made contestable in an efficiency review three years ago.

The contracts have three years to run, with two-year rights of renewal thereafter.

ConnecTel has twice as much of Telecom's business as its nearest competitor. But spinning it off could open it to contracts from Telecom's competitors as well.

Mr Frame said that at least six companies were competing for Telecom's maintenance business and the days when Telecom was the sole source of network expertise were gone.

An analyst said Telecom's decision was no surprise, since telecom companies around the world that were much larger than Telecom were now outsourcing their maintenance.

He said putting a value on the division was difficult.

But on the assumption of turnover in the region of $150 million and a 20 per cent profit margin, it could be worth about $240 million, a useful amount given the demands for capital faced by Telecom as it expands into new business areas and Australia.

Mr Frame said the sale could have significant benefits for ConnecTel and its staff.

"It has the potential to open up more options for new business. Just as Telecom is moving to contract out its design, build and maintenance work, so too are other companies which own communications networks in New Zealand and offshore."