Telecom awaits Optus move in AAPT tussle

By Richard Braddell

WELLINGTON - The tussle between Telecom and Cable & Wireless Optus for control of Australia's third-largest telecommunications company, AAPT, is in a temporary lull as Telecom awaits Optus's next move which, in turn, depends on Australia's competition watchdog, the ACCC.

Telecom, which last week pipped C&W Optus's $A5 a share offer for full control by buying a key 10 per cent stake for $A5.70 a share, is seeking a significant but controlling minority stake.

C&W Optus is thought likely to want 100 per cent so it can exploit the synergies between its Australian network and AAPT's.

In common with AAPT, C&W Optus has been developing facilities that will give it direct access to customers so it can by-pass Telstra, which has control of the "last mile" in much of the Australian market.

Of particular interest to C&W Optus is the LMDS spectrum upon which AAPT is spending $A250 million to develop line of sight radio links to serve business customers in major centres.

C&W Optus, along with Telstra, was barred from buying the spectrum when it was auctioned earlier this year, and this is almost certainly one of the issues under discussion between C&W Optus and the ACCC.

C&W Optus has agreed to delay issuing its offer, which in Australia has to be contained in what is known as a Part A statement, until next Monday. However, there is some expectation that the ACCC may clear the bid by Friday, opening the way for C&W Optus to proceed this week.

At that point, Telecom is likely to respond with its own Part A, once it has seen by how much C&W Optus is prepared to raise its bid. Since Telecom's raid last week, AAPT's price has traded closely around $A5.70, and short of the $A6-$A7 valuation in an independent report by AAPT's advisers, Grant Samuel, suggesting the latter value is on the top-side.

That valuation was attacked yesterday by C&W Optus adviser Merrill Lynch, which claimed there might be weaknesses in the methodology used by Grant Samuel. Reuters reported Merrill Lynch as saying the estimate of AAPT's net present value was based solely on AAPT's financial models and forecasts "despite AAPT's well-publicised poor record in meeting prospectus forecasts."

In particular, Merrill Lynch thought the valuation put on the LMDS network was too high. Whichever way Telecom responds to C&W Optus's bid, it will be mindful that the episode has the potential to damage what have been good relations with both the Australian carriers.