Telecom flexes its transtasman muscle

By RICHARD BRADDELL

WELLINGTON - Telecom has begun to exploit the transtasman clout brought about by its 80 per cent stake in Australia's AAPT.

Yesterday it unveiled three multi-million dollar deals in which New Zealand corporate customers Owens Group, Carter Holt Harvey and Heinz Wattie have chosen AAPT to supply telecommunications services in Australia.

No value has been given for the New Zealand side of that business, but the contracts in Australia are worth $A6 million for AAPT.

Telecom's media relations manager, Martin Freeth, said of the transtasman collaboration: "In terms of doing business together, you could say they are the first [contracts] in any formalised sense."

Until now, Telecom has often been on the losing end of transtasman deals in which rival Telstra has leveraged its Australian relationships to win New Zealand business with Australian corporates.

For Owens, the transtasman deal is part of a cost reduction programme involving integration of service units supporting 12 Australian and New Zealand operating units into one shared service centre in Auckland.

Telecom's group general manager of sales and service, Kevin Stratful, said Telecom and AAPT could offer a common transtasman Ariba-based e-commerce platform, and common CDMA mobile systems which are under construction.

The deals come as Telecom's share price has plunged to a 21-month low, closing yesterday at 733c.

Telecom has been caught in a vortex of international disenchantment with telco stocks. In Australia, telcos have lost 28 per cent since the third week in March.

Investors also have concerns about New Zealand, with the potential for an adverse outcome from the telecommunications inquiry and the prospect of new competition after next month's third-generation cellular spectrum auction.

Another worry seen by analysts is the near-term dilution effect on earnings of the investment in AAPT. Several have downgraded full-year earnings forecasts to $780 million from more than $810 million previously. Last year, Telecom reported a net $822 million profit.

But while Telecom's short-term earnings outlook is weaker, broker Merrill Lynch said in a note that on a discounted cashflow valuation (which reflects the estimated value of future earnings) Telecom's value had actually gone up given the expected returns from current capital expenditure.