Telecom NZ to invest in Hutch 3G

Analysts have been waiting for such a strategic announcement from Telecom NZ

In this story: Fast forward with Hutchison In bed with Microsoft Profits fall flat RELATED SITES

By Staff and wire reports

WELLINGTON, Australia -- Telecom New Zealand will invest $210 million in a wireless venture with Hutchison Whampoa to offer 3G services in Australia.

Telecom NZ's alliance with Hutchison will see the telcos establishing dedicated third generation companies in both Australia and New Zealand.

In a separate announcement, Telecom NZ said it would merge its New Zealand Internet portal with Microsoft. The deal gives the software giant immediate access to Telecom's 370,000 customers.

Fast forward with Hutchison

Telecom NZ is to put $210 million and Hutchison $315 million into Hutchison 3G Australia. In New Zealand, Telecom would initially own the 3G holding company with Hutchison taking an option for a $106 million stake.

Hutchison Australia and Telecom NZ recently purchased radio spectrum in their respective countries suitable for carrying the faster and more versatile 3G mobile services.

"Telecom New Zealand represents a logical partner for us given its formidable strength in the New Zealand market and the substantial synergies which can be extracted through a trans-Tasman (Australasian) presence," Hutchison Whampoa group managing director Canning Fok said in a statement.

Analysts have been waiting for such a strategic announcement from Telecom NZ -- the former Post Office telecommunications branch privatized in 1990 -- after it missed out to SingTel in the race for Australia's Cable & Wireless Optus.

In bed with Microsoft

Telecom NZ has an existing software resales agreement with Microsoft but Telecom chief executive Theresa Gattung said the new arrangement will go much further.

The two companies will join their Xtra and MSN portals together, with Microsoft's investment taking the form of seven-year notes, which it can convert to ordinary Telecom NZ shares at a strike price of NZ $8.32.

"Microsoft's technology contribution to the new portal and their NZ $300 million ($127 million) investment in Telecom is an encouraging endorsement of our ongoing growth strategy," Gattung said in a statement.

Microsoft chairman Bill Gates said this company's wider plans in New Zealand -- including relationships with the government and Telecom NZ -- would create growth opportunities for the country's technology industry.

Profits fall flat

Telecom NZ also announced profit in the three months ended March 31 fell 22 percent to $68 million from $87 million a year ago.

The results exclude the dividend from its half share in trans-Pacific cable company Southern Cross Cable Network.

Inclusion of the $104 million cable dividend would boost Telecom NZ's third quarter profit to $162 million, up from $87 million for the same period a year earlier.

"It's one of the better quarter results we've seen… mobile subscriptions look a little better than what we were looking for," JB Were broker Peter Stokes said.

Clarification of Telecom NZ's plans in Australia had also benefited the stock, he said.

Telecom, the dominant telecommunications provider in New Zealand and owner of Australian telco AAPT, is also the largest mobile phone operator with 1.269 million mobile phone connections to rival Vodafone's 889,000.

Telecom set a dividend of five cents for the quarter, unchanged from the previous quarter but down on 11.5 percent for the same period a year ago, reflecting a previously announced decision to retain more of its earnings to fund growth.

Reuters contributed to this report.

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Telecom NZ Ltd

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