A tie-up for AAPT looks to be drawing near

Speculation of the folding of the third-largest fixed line carrier in Australia into a merging with Hutchinson and Vodafone has been fueled recently by the continued decline in the profitability of AAPT.

After writing down the value of the Australian telco, Telecom New Zealand, the owner of AAPT, posted a drop of 59 percent in its first-half profits to $NZ162 million ($129 million) recently. The management at AAPT is currently looking to reduce its costs in order to offset the drop in customers as its consumer division continues to drag.

In order to save it as much as $7.5 million in annual costs the AAPT is preparing to shift 350 of its call centre jobs to Manila.

This year has also seen a cut of $10 million to AAPT’s guidance for pre-tax earnings taking it to between $60 million and $80 million, which will strike another blow to confidence in the Australian telco.

The recent entry into a marriage of convenience saw the third and fourth largest mobile phone operators, Vodafone and Hutchison respectively, merging their service, which has seen the heating up of the long-awaited rationalisation in the telecommunications sector.

Daniel Blair, a Southern Cross Equities Analyst, said that for years a lack of fixed line infrastructure had seriously limited mobile-only telco’s like Hutchison, which meant that for the merged entity the prospect of a tie-up with AAPT would look very attractive.

In other countries Vodafone has shown interested in an infrastructure that would provide fixed-line services. It even bought iHug, the fixed-line broadband group based in New Zealand, from iiNet at a price of $NZ41 million. A tie-up would be necessary for Telecom in order to keep a foothold in Australia, which due to it lacking opportunities in New Zealand would be important, said Mr Blair.

A 10 percent stake in Hutchison, who are currently making a loss, is already held by Telecom. The fact that Vodafone is currently Telecom’s primary rival in New Zealand will be the biggest barrier to overcome if any deals are to be struck.

With regards to a merger between Vodafone and Hutchison, the chief executive of Telecom, Paul Reynolds gave it the thumbs up, saying “As we look at it we think this is a value-enhancing deal. There are likely to be significant merger synergies … [and] we think it adds to the value of the Telecom stake.”