Media tycoons angry as One.Tel folds

Junior telco One.Tel has been placed in the hands of administrators

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia -- Junior Australian telco One.Tel collapsed into insolvency Wednesday morning, with key backers declaring they had been "profoundly misled" about the company's true financial position.

Publishing & Broadcasting chairman James Packer and News Ltd chairman Lachlan Murdoch said in a joint statement to the Australian Stock Exchange that "like all shareholders we are angry".

Packer is the son of Australia's richest man, Kerry Packer, while Murdoch is the son of News Corp chairman Rupert Murdoch.

Also One.Tel's demise a boost for competitors

Between them, the two media giants put $460 million (Aust$900 million) into One.Tel and were about to put more money into the company before due diligence revealed its parlous financial state.

PBL and News companies hold a 41 percent stake, while One.Tel founders Jodee Rich and Brad Keeling hold 36 percent.

Rich, Keeling forced to step down

News Ltd chairman Lachlan Murdoch says he and fellow director, PBL chairman James Packer, were misled on One.Tel's financial status

Rich and Keeling were forced to step down as joint chief executive officers on May 17, when PBL and News said they would underwrite a $69 million ($132 million) capital raising.

But the due diligence process as part of the capital raising has shown a massive gap in the company's finances.

As late as last month, Rich was assuring investors at a telecommunications conference in Sydney that One.Tel would have $37 million in the bank by June 30.

But the marketing hype masked a deteriorating cash flow.

Problems with billing systems, the heavy cost of spectrum and network building, and what looks to be poor management meant that the company's losses were increasing, not being whittled away as Rich claimed.

'Profoundly misled' as to company's financial position

"We have been profoundly misled as to the true financial position of the company," Packer and Murdoch said.

The One.Tel board announced to the ASX Wednesday morning that administrators had been appointed to the company.

Trading in One.Tel shares was suspended on Monday morning. Their last traded price was A16c last Friday -- a far cry from their December 1999 high of A$2.48.

The statement said the company's auditors, Ernst & Young, had found from their due diligence investigations that the capital raising would not be enough to keep the company solvent.

"The renounceable rights issue to raise A$132 million can therefore not proceed."

Administrator Steve Sherman from Ferrier Hodgson said it would be "business as usual" for One.Tel staff and customers while a review of its operations was conducted.

Discussions with major creditors

He said One.Tel would continue to trade as a going concern while discussions were held with major creditors.

Those creditors include Australia's two biggest telcos, Telstra and Optus, and Lucent Technologies, which has been building One.Tel's national mobile network and is owed as much as $250 million.

Lucent, which has just terminated its merger talks with France's Alcatel, provided more than $500 million in vendor finance for One.Tel's national network and spectrum purchases.

Under the generous terms of that deal, there was no interest payable until 2003 and no principal repayable until 2006.

But with One.Tel now in administration, the full amount becomes due immediately. This means Lucent could end up owning a key slice of One.Tel's assets.