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Telecom may make more acquisitions in Australia as it attempts to revive its struggling subsidiary AAPT, analysts say.
The giant telco made a A$357 million ($403 million) bid for Australian network company PowerTel this month and Australian telco Amcom yesterday confirmed it had talked to Telecom about industry consolidation.
Its strategy of acquiring businesses in Australia is a dramatic shift for the company, which had tried to sell AAPT.
Australian-based ABN Amro analyst Ian Martin said Telecom would look to acquire more telco companies in the coming year.
"They will do it step by step, so they will probably look at bringing iiNet in later on in the year and other internet service providers. Once Telecom makes the network infrastructure investment in PowerTel, it will need traffic and business on the network to justify the investment and the easiest way to do that is through acquisition."
Like AAPT, iiNet is a retail business and has a strategic alliance with PowerTel, so it was a logical fit with Telecom, Martin said.
Telecom may bid for iiNet to deflect an offer from rivals Amcom or Optus who would place Telecom's alliance with PowerTel under threat, he said.
Telecom was forced to change its Australian strategy because AAPT suffered a substantial decline in margins over the past year, driven by a rise in wholesale prices across all products from its wholesale supplier Telstra, Martin said.
Goldman Sachs analyst Andrew White said Telecom would use PowerTel as a "platform for growth".
Telecom had "reasonable growth" in its New Zealand operations between 2001-2005 but during this time its strategy in Australia fell over and was compromised by a lack of execution and poor delivery, White said.
"Their strategy evolved from a growth play to a defensive one, with them stating they were protecting their corporate customers, and it made more sense to have a better business to help pay for that," White said.
The company's new strategy was made apparent when Telecom announced the merger with PowerTel, he said.
PowerTel managing director Paul Broad has said further acquisition would be needed to get critical mass in the combined entity.
