Sixt sense forecasts reward

By RICHARD BRADDELL utilities writer

Telecom officially killed its Australian Code Division Mode Access (CDMA) digital network this week - but talks continue with Hutchison Telecommunications about possible collaboration in third generation mobile.

Hutchison's deputy chairman, Frank Sixt, was reported by Australian media after the company's annual meeting on Thursday as saying that he would not be surprised if there was a "reward" for their efforts.

Mr Sixt said Hutchison's third-generation plans would cost $A1 billion ($1.22 billion) over the next three to five years and were likely to be financed by equity issues.

Telecom, through subsidiary AAPT, and Hutchison have been building complementary CDMA networks. Had the plan gone ahead, Hutchison would have covered Sydney and Melbourne, and AAPT the rest of Australia.

But Telecom's decision to can the network, after suspending construction in December, is no surprise.

The cost was approaching $A700 million and it faced the prospect of never gaining an adequate customer base.

AAPT operates in Australia's mobile market as a reseller. Combined with similar-sized Hutchison, the two still have less than a million customers.

That is less than half the size of Vodafone, which is regarded as barely having critical mass.

The logic of the two companies teaming up to launch third generation is that they would have a product different from that of their main competitors.

Telecom also has the option of following in the footsteps of The Warehouse, which runs as a virtual mobile network operator using Telecom's network in New Zealand, and Virgin Mobile, which does the same using Optus in Australia.

The Warehouse and Virgin use equipment supplied by Auckland businessman Chris Jones' Telemedia to operate their own billing and customer management systems, thereby retaining revenue for value-added services.

Telecom has spent $A125 million on its Australian network.

It has yet to decide how much of that will be written off, but a good proportion of the investment could possibly be rescued if a third-generation network went ahead.

A full $A125 million writedown would still be more than offset by the $US100 million dividend Telecom will receive from Southern Cross cable.