Monday, August 09, 2004

Telstra buys into Hutchison's 3G

Telstra buys into Hutchison's 3G
Kate Mackenzie
Australian IT - AUGUST 05, 2004

TELSTRA will buy half of Hutchison's 3G mobile phone network in a joint venture deal that will fast-track Telstra's launch of next-generation mobile services.

The agreement, unveiled yesterday, will also provide a significant cash injection to Hutchison, which is still recovering its $1.3 billion network investment.
Under the heads of agreement Telstra would pay Hutchison, which is 58 per cent owned by Hong Kong-based Hutchison Whampoa, $450 million over three years for half-ownership of the network, and spend a further $114 million in the same period expanding the network.

The deal means Telstra does not have to build its own 3G network, which the giant carrier last month priced at about $900 million.

In the agreement, which is subject to regulatory approval, Telstra would begin selling 3G mobile telephony services such as video calls to its customers from the second half of 2005.

It effectively leaves Optus, which is building its own 3G infrastructure but has indicated it is interested in network-sharing, out in the cold.

"We have run parallel discussions with other players ... at the end of the day we formed a view that the coalition with Hutchison produced the very best outcome for Telstra," chief executive Ziggy Switkowski said.

The complex agreement is between Telstra and Hutchison 3G Australia - itself a joint venture between Hutchison Telecommunications Australia and Telecom New Zealand, which owns 20 per cent. The deal was discussed with Telecom NZ, Dr Switkowski said.

Telstra would make its $450 million payment in four parts over three years, with the first instalment in November.

The payments would not affect Telstra's capital management plan, announced in June, or its $3 billion-a-year capital expenditure plan.

The deal provides for the companies to share capital expenditure and operating expenditure costs involved with maintaining, upgrading and expanding the network.

Hutchison's 3G network only covers Sydney, Melbourne, Brisbane, the Gold Coast, Adelaide and Perth. The telcos have already agreed to expand the network into Canberra.

Telstra's group managing director for wholesale, broadband and media, Bruce Akhurst, said if there was no agreement on where to expand the network, either company could build base stations and sell access to the joint venture.

The agreement provided for mediation procedures if there were disputes, Mr Akhurst said.

The deal gives Telstra access to Hutchison's handset-buying capabilities, which it draws from Hutchison Whampoa, the largest 3G network operator in the world.

"Telstra is piggybacking on that agreement to secure access to those handsets at the right price at the right time," Hutchison Australia chief executive Kevin Russell said.

Hutchison's 3G users currently roam on to Vodafone's 2G network in areas outside the 3G network, but Mr Russell said Hutchison had the right to roam with Telstra.

Analysts differed about the amount paid by Telstra, but concurred the deal was mostly positive for the No1 telco because it reduced the risks and teething problems associated with building a new network and put Telstra in a good position against its main mobile competitor, Optus.

"It's a positive move for (Telstra) in terms of not having extra capital deployed," Macquarie Equities analyst Scott Ryall said.

Optus mobile managing director Allan Lew said the agreement did not change his company's plans, and it would also offer 3G services from next year. "We will continue to look at the options available to us. Obviously, one is to wholesale services from this joint venture. Another is working out something with Vodafone," he said.

News of the agreement sent shares in Hutchison soaring 11c to 64c yesterday before closing just 1c up at 54c. Telstra shares closed 2c lower at $4.93.