Telecom quashes Xtra sale talk

By RICHARD BRADDELL utilities writer

Telecom has dismissed as "speculative" and "nothing new," an Australian report that it is considering selling its Xtra internet arm, along with directories and its Australian internet business, Connect.com.

A report in yesterday's Australian Financial Review said Telecom was considering a $A1.3 billion float in a bid to reduce debt and unlock value.

But Telecom and analysts said the report that a partial selldown could take place under a project, named XTC, simply restated what had been known for a long time.

In February, Telecom chairman Roderick Deane and chief executive Theresa Gattung said that operations, such as mobile, had been separated and could be spun off, if that was deemed appropriate.

But selldowns would have to provide strategic benefits as well as bolstering capital.

Paul Richardson of UBS Warburg said the $A1.3 billion valuation placed on the internet and directories businesses was a commonly accepted valuation among analysts.

While Xtra was capturing the headlines, he said the value lay in the directories business since it was the one generating strong cashflows.

Two years ago, Xtra might have driven the valuation with directories being viewed as "old economy."

Spinning off the three businesses, which are headed by Telecom executive Graham Mitchell, would not be difficult.

However, several sources said no deal was imminent.

Given the out-of-favour status of dot coms, it was thought more likely that Telecom would be looking for a trade sale rather than float, and partnering with a media company might be attractive.

Telecom has several options for reducing debt, including partial sales of Xtra, mobiles and the Southern Cross cable.

Although reducing debt would be attractive, Mr Richardson said Telecom had plenty of capital for day-to-day operations.

But additional capital would give flexibility to mop up smaller mobile players as Australia's market consolidates over the next year, and to take up potential assets put up for sale as SingTel absorbs Optus.