New-look Telecom hungry for change

By RICHARD BRADDELL

If Monday's restructuring was the entree, then the main course is still very much in doubt.

The division of Telecom into six operating divisions, two in New Zealand, two in Australia and transtasman mobile and internet operations, was little surprise.

So much so that Telecom chief Theresa Gattung made little effort to disguise that the new structure will help with any capital restructurings, spin-offs or, as may well turn out to be the main course to come, an alliance with Japan's NTT DoCoMo to bid for Australia's second largest mobile business.

Of course, she did not confirm that Telecom was in the running for Cable & Wireless Optus's mobile business, but that it is looking at Optus in a partnership with NTT DoCoMo is one of the worst-kept secrets in the industry.

If Telecom is to dine out on Optus mobile, then it will not only be short-listed before Christmas, but will need to be able to put together a package which convinces Optus' owners that it has the best deal.

Clearly, Britain's Cable & Wireless, Optus' 53 per cent parent, would like to release cash through a sale, and it may well favour a lower cash bid from Singapore Telecom.

But the case is not as clear-cut as that. Singapore Telecom's ardour may be tempered by the consideration that other, cheaper Asian assets in even stronger growth areas than Australia's mobile market may come up for sale.

Another issue hanging over the Australian market is whether the 20 per cent-plus growth is sustainable. The point may be reached where margin squeeze cancels out strong mobile subscriber growth and leads to the declining revenue that Telecom experienced in the last quarter.

How Telecom/NTT DoCoMo would structure a deal with Optus also remains in question. In the end, a solution where Cable & Wireless and/or Optus leave in equity may prove most attractive given that while C&W wants to get out, Optus still has many long-term institutional shareholders who may want to retain their exposure.

Even if Telecom does succeed with Optus, the question of the third generation mobile spectrum auction remains. Optus is reportedly poised to lock in $A2 billion in funding for construction contracts and to cover the cost of spectrum.

Whether it needs it is another matter. Australia's third generation auction looks set to be nearly as damp a squib as New Zealand's. Likely bidders for the spectrum - which is in the 2 GHz range - include Telstra, Optus and Vodafone. Telecom/AAPT has not declared its hand, One. Tel has ruled itself out, while Hutchison is likely to develop its 1800 mHz spectrum, whose approval for third generation by the International Telecommunications Union took much of the zip out of New Zealand's auction.

With a maximum of four likely contenders, demand is unlikely to exceed supply.

Meanwhile, Telecom's transtasman restructuring largely fulfilled analysts' expectations. The focus has been on the marketing and sales side, as has been the case in other telco restructurings.

One surprise was that AAPT's data business was not merged with Telecom Australia's, the reason for that being Telecom Australia is 5 per cent owned by its largest customer, Commonwealth Bank, which also is more interested in the information technology side of its $A5 billion contract than is evident in AAPT's business.

Hanging off the bottom of the six business unit structure are a swag of support functions which will be managed on a transtasman basis, including networks in Australia and New Zealand.