Paul Barry: RICH KIDS: How the Murdochs and Packers lost $950m in One.Tel

Reviewed by JIM EAGLES

The prospect of cashing in on a sharemarket bubble can make international business moguls just as blindly greedy as ordinary investors.

That's the clear message from this amazing saga of the boom and bust of Australian dot.com stock One.Tel.

One.Tel was a company started by two colourful entrepreneurs, Jodee Rich and Brad Keeling, to ride the high-tech new-economy bubble.

They started using sexy marketing to sell mobile phones and grew that rapidly into a plan to create an alternative Australian telecommunications network.

From the start it was an unstable house of cards based on marketing hype, bizarrely inflated sales figures and bodgie financial information.

Plenty of journalists suspected it and wrote as much.

Customers of One.Tel found out to their cost and tried to complain.

Rivals were sure of it and told anyone willing to listen.

Even history provided a warning in the form of Rich's previous company Imagineering.

During the earlier personal computer bubble, Imagineering floated high on a similar wave of hype until it suddenly crashed and burned a lot of investors' money amid accusations of appalling management and woeful customer service.

But did investors take notice of all that? Did they heck. They were too eager to share in the billions that were being made all around the world from the new economy.

When One.Tel announced its plans to take on Telstra head to head and listed on the Australian Stock Exchange there was a stampede to hand over money.

In fact the two richest, shrewdest families in Australia, the Murdochs and the Packers, led the charge.

The Packer heir, James, came to regard Jodee as his personal business guru and persuaded his reluctant and at the time ailing father, Kerry, to put A$375 million ($431 million) into the company. Then James convinced his pal Lachlan Murdoch, with the approval of father Rupert, to add another A$475 million.

Shares in One.Tel rocketed skywards until by late 1999 the company had a market value of A$5.3 billion - 700 times its claimed earnings and 15 times its reported annual sales which, themselves, bore little relation to reality.

This company which was not making a cent was suddenly worth considerably more than Qantas and almost as much as the entire Packer empire.

Rich and Keeling were the toast of the land and splashed out millions on the good life including houses, cars, island hideaways, boats and aircraft.

Meanwhile the company was a shambles.

Despite the fact that it had its own feng-shui master, who had buildings redesigned and fish tanks installed everywhere to create the right atmosphere, morale was at rock bottom.

One.Tel was so desperate to sign up mobile phone customers that many of the people it gave phones to never paid at all.

Even when customers did pay the special offers frequently meant that the more calls they made the more the company lost.

Huge numbers of customers tempted by the low prices to switch networks found themselves unable to connect to their new supplier and were left without a mobile service.

The billing system was so chaotic that many people were never asked to pay anyway. And the management accounting system was unable to provide an accurate picture of what was going on.

Incredibly, this mess was carrying on under the supervision of Australia's regulatory bodies and the watchful eye of one of Packer's top financial advisers, but it seems nobody really noticed until it was far too late.

Indeed, after One.Tel had used up all the cash raised on the sharemarket - in just nine months it burned through some A$510 million - the Murdochs and Packers got perilously close to putting in another A$200 million.

Eventually Kerry Packer got in on the act - apparently threatening to remove Rich's right testicle when he learned what was really going on - a few One.Tel insiders starting airing their concerns, the true picture emerged, and the plug was pulled.

Present estimates are that in its short life One.Tel lost around A$2 billion but the courts and the regulatory bodies are still picking through the debris.

This is an amazing and salutary story which shows all too clearly the unstoppable power of greed, stupidity and wishful thinking.

Coming on top of the very similar collapse of insurance giant HIH it also suggests that Australia's corporate regulatory model is not one which New Zealand should rush to adopt.

* Paul Barry: RICH KIDS: How the Murdochs and Packers lost $950 million in One.Tel

* Bantam, $24.95