Grander Telecom plans on track

By Richard Braddell

Between the lines

Independent expert Grant Samuel is sticking to its guns. Not only has it effectively endorsed a previous valuation of Telecom's Australian acquisition target AAPT, it has raised it 13c, to between $A6.17 and $A7.14 a share.

The valuation is more than a little surprising given that it is well above the high water mark set by the Australian sharemarket despite AAPT attracting its second takeover bid in six months.

Telecom has little reason to care. It doesn't want control, and with that fact well understood, enough AAPT investors are still likely to take the chance to cash up while leaving a good chunk of the company in public ownership.

But for all the blue sky the sharemarket sees in Grant Samuel's assessment, Telecom is still attracted to Australia's third-ranked telco because it sees better growth prospects than may be available in New Zealand.

That raises the question of why an investor would choose Telecom as against AAPT. One reason might be that Telecom is less risky. But the risks in AAPT's business are its attractions. For instance, AAPT is an entrepreneurial company, something that the more mature Telecom regrets it cannot be, even if its new chief executive, Theresa Gattung, promises it will be much more nimble in future.

Telecom's relationship with AAPT also raises some tantalising prospects. AAPT is building a digital cellular network that will use the same state-of-the-art digital technology that Telecom is going to roll out in New Zealand.

Why not run the two cellular businesses as one? Indeed, why not carve them off into a separately listed company? Telecom has already suggested this could happen with Xtra and the Southern Cross cable project as a way to get the hidden value in those businesses out in the open.

That has yet to happen. But a case for splitting off cellular can also be made. As Vodafone has amply demonstrated by capturing about half New Zealand's cellular subscriber growth in the last quarter, the ownership nexus between landline and wireless operators is far less important to cellular success than once was thought.

It could be an inhibitor since competitors such as Saturn are unlikely to resell Telecom cellular under the current ownership structure.

Carving off the cellular business also opens other possibilities. AAPT's cellular business will be complementary geographically to one being rolled out in Australia by Hutchison. Putting them together could create a potent regional player.

A flight of fancy, perhaps. But as Telecom becomes increasingly boxed in locally, it will have to find new ways of realising the value in its assets. That might well prove to be through spawning entrepreneurial new businesses.