DoCoMo's suit sets Telecom jangling

SYDNEY - Telecom New Zealand is considering a possible alliance with Japanese giant NTT DoCoMo and Australia's Cable & Wireless Optus, the Australian newspaper says.

NTT DoCoMo is in talks with C&W Optus, Australia's second-largest mobile phone operator, the paper reported on Saturday. "Industry insiders" had since told its staff that Telecom, which owns Australian telco AAPT, had also raised the prospect of linking up with the Japanese company.

Telecom chief executive Theresa Gattung said her company was also talking to NTT, said one source, who did not want to be named.

The Australian said those comments added weight to speculation that a new Asia-Pacific mobile phone "juggernaut" involving the three parties was in the making.

And C&W Optus chief financial officer Norman Gillespie privately told key industry players that "everything was on the table" in terms of a company restructure.

He flagged a possible stockmarket float of the mobile phone division and an alliance with an Asian partner as early as three months ago and raised the issue again last week.

The paper said that with parent company Cable & Wireless facing the threat of takeover, C&W Optus was trying to lock in new backers in the Asia-Pacific region.

A tie-up between Telecom and NTT DoCoMo, Japan's largest cellphone operator, is being seen as a strong alliance which would add a lot of value to the New Zealand corporate.

Telecom has been hinting that it is investigating possibilities in Asia, with analysts picking a link with Singapore Telecom as the most likely.

But now they are questioning whether the reported troika is feasible.

Telecom already owns 81 per cent of AAPT in Australia while DoCoMo has an interest in Hutchinson Whampoa, with shared telecommunications interests in Europe and Asia.

Competition issues may well arise with an Optus-Telecom link.

The Australian competition watchdog has already barked to stop an Optus-AAPT merger, which resulted in Telecom taking control of AAPT.

Ord Minnett analyst David Wallace said technology was also an issue.

Optus operates a GSM cellphone network while Telecom and AAPT are moving to a CDMA system.

DoCoMo uses a variant of the CDMA system.

"I would like to see Telecom form an alliance with a DoCoMo," Mr Wallace said. "It could add a lot of value to Telecom."

Other analysts expressed similar sentiment over the weekend.

However, there may be obstacles to any formal alliance unless Government clearance is obtained.

Since Telecom's core shareholders have departed, the share register is open.

But the Kiwi Share obligation imposes a 10 per cent limit on any holding without Government approval to go higher. In the current political climate that is seen as a likely bar to any major exchange of shares.

Another possibility is a joint venture similar in concept to Telstra-Saturn to develop particular markets.

While C&W Optus continues to deny that it is facing a breakup, pressure is intensifying as its parent company, Cable & Wireless Plc, faces the takeover threat. C&W Optus is seen as trying to lock in new backers in the Asia-Pacific while it can, preferably ones with deep pockets as expensive mobile phone licence auctions loom.

A wider restructuring of C&W Optus is also on the cards.

The suggestion is that in addition to its $5 billion broadband cable, C&W Optus may also sell or partially float on the Australian Stock Exchange by the end of this financial year.

The sale would include non-core assets such as its discount mobile and internet reseller Dingo Blue.

Telecom's share price closed at 727c on Friday.

- STAFF REPORTER, NZPA