Telstra fails to prise Orange from Hutch as 3G network share talks fail

20 Apr 2004

Hutchison Telecommunications (Australia) this morning released a statement confirming that it had held preliminary talks with Telstra Corp concerning ‘a number of business opportunities to cooperate on mobile network infrastructure,’ but that the discussions had now finished. According to local media reports the two companies were debating the possibility of sharing infrastructure for third generation mobile networks. Telstra was also believed to have been looking to buy Hutchison’s 2G mobile operator Orange for around AUD250 million (USD185 million). Neither company has said why the talks had ceased.

The country’s newest operator, Hutchison launched its 2G CDMA network in September 2000 under the Orange brand name. Having fallen well short of its target of 400,000 subscribers by the end of 2002, in April 2003 it became the first Australian operator to launch a full commercial 3G offering under the ‘3’ banner. At the end of 2003 approximately 21% of Hutchison’s customers were 3 users, with the remainder on the Orange network. Despite Hutchison having spent more than AUD600 million on Orange, the operator reported an AUD280 million loss in the second half of 2003 and it is widely believed that its parent sees the operator as a distraction from its core 3G business. Following the failure to reach an agreement with Telstra, Hutchison said it is open to discussions with all of its mobile rivals on network sharing. Many analysts believe that consolidation in Australia’s five-player mobile market is inevitable, whilst the nation’s operators have all been involved in one-to-one talks concerning 3G network sharing, but have so far failed to agree on price.

Telstra’s interest in Orange has taken the Australian telecoms market by surprise. Many analysts’ had expected Telstra to slow down its spending spree following the unexpected resignation of the company’s chairman Bob Mansfield last week. At the time, his stepping down was believed to have been prompted by the lack of backing given to him by the company in a takeover bid for John Fairfax Holdings, publisher of the Sydney Morning Herald and the Australian Financial Review. The acquisition was believed to have been strongly supported by Mansfield and company CEO Ziggy Switkowski, but was overwhelmingly defeated by Telstra’s board. However, Deputy Chairman John Ralph – taking over from Mansfield until a replacement is found – said in a statement on Friday that the Telstra board had supported the company’s broad growth strategy, a claim that appears to have been borne out by the group’s attempt to purchase its local rival.

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