Sell-offs in Aussie may add value here

By Richard Braddell

Between the lines


In a wired world, no island is an island and neither is a telco if Telecom's indecent haste to cement a position with Australian carrier, AAPT, is a guide.

We must wait for events to unfold to see if Telecom indeed gains the foothold it belatedly desires in the fast-growing Australian market. In the meantime, investors are soon to be offered two more telecommunications company investments with a distinctly transtasman flavour.

The world's biggest cellular operator, Vodafone, is to sell a portion of its Australian interests. The big surprise will be if it doesn't throw in part of Vodafone New Zealand.

Again, United International Holdings, the parent of Wellington local service telephone company Saturn Communications, has appointed CS First Boston and Morgan Stanley to manage a public offering of part of its Australian pay television business, Austar, that is expected to include Saturn as well.

These initial public offerings will be substantial, with an estimated value of $A3 billion already ascribed to just 20 per cent of Vodafone Australasia.

In Australia, Vodafone is still only number three in the market. But business has been booming with sign-ups running at 32,000 a month, bringing customer numbers to more than one million.

In New Zealand, business has also taken off with nearly 200,000 customers, up from 130,000 when the company was bought from BellSouth for $750 million in November last year.

Market share has also been growing, to perhaps 23 per cent from 17 per cent back when BellSouth sold out.

Vodafone has also pumped additional money into New Zealand, and while some of a claimed total investment approaching $1 billion has yet to be spent, around $200 million has been going into improving the network with another $50 million into distribution.

For investors, the case for rolling the operations together in a trans-Tasman float is reasonably straight forward since both are GSM-based cellular businesses.

The rationale for doing the same with Saturn and Austar is less obvious; while Saturn offers cable television, its business is focused on conventional telephony, while Austar is purely in pay-TV, using satellite for distribution.

While the $240 million Saturn has already spent looks set to quickly capture a quarter of the Wellington market, profit may be some way off, particularly if another $700 million is spent in Auckland and Christchurch.

Austar, meanwhile, has built a network presently serving 327,000 customers in regional Australia and is expected to move from break-even to profit, giving credence to a $A700 million estimate of its value.

As yet, listing intentions in either float have not been confirmed, but it can only be hoped that transtasman listings will bring a bit of quality to New Zealand's sorely depleted sharemarket.