Telecom tipped to lose $2.5b on AAPT

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Telecom's transtasman subsidiary AAPT could be sold by August, according to market speculation, and if it sells for its estimated value of $500 million it will have cost shareholders $2.5 billion over the past decade.

There is no formal sale process in place for AAPT but Telecom chief executive Paul Reynolds has said the subsidiary was a non-core component of the company's mainstream business, and he would consider selling it if any serious offers were lodged.

Craigs Investment Partners analyst Geoff Zame said market speculation had centred on private equity interests against the backdrop of the Australian Government's $43 billion National Broadband Network (NBN).

The most prized of all AAPT's assets is its fibre backhaul network, which overlaps those of Telstra and Optus.

In its current form the NBN is an access network only and will not incorporate backhaul, so there is heightened interest in acquiring a stake in fibre backhaul providers such as AAPT.

Craigs estimates Telecom has invested $3 billion, or $1.50 per share, in the Australian market and that AAPT would sell for about A$400 million ($500 million), which would result in a net cost to shareholders over the past decade of about $2.5 billion, or A$1.25 per share.

The value of AAPT includes its 17 per cent share in internet service provider iiNet.

Telecom bought into AAPT in 1999 and moved to full ownership by 2000.

Zame said August would be a good time to sell the subsidiary as it could be completed before the full year result.

"If this happens then it would not be out of the ordinary," Zame said.

Analyst Paul Winton of Temple Investment said the fact AAPT could be sold off was not surprising, but what would be was if Telecom and the buyer reached a price that both parties agreed on.

Winton said it would be better for Telecom to have the cash "in their back pocket" and invest it into its core business than have it in "an element that was not critical to its long-term execution strategy".

Telecom spokesman Mark Watts said the company would not comment on "pure speculation".

Two attempts to sell the business in 2006 failed, which made Telecom focus on AAPT's profit margins through new acquisitions and a move away from its reliance on its wholesale business.

AAPT's financial results for the nine months to March showed a deterioration in its business. Operating revenues decreased by 16 per cent to $668 million in the nine months for the 2009-10 financial year.

Private equity players such as TPG Capital and Quadrangle Group are firms believed to have lodged proposals with Telecom. The telco's shares closed down 3c yesterday at $1.88.