Telstra finally cuts deal with Hutch to get ahead in 3G race

4 Aug 2004

Australia’s dominant telecoms operator Telstra Corp has signed a AUD450 million (USD320 million) deal for a 50% stake in Hutchison Telecommunications’ third-generation (3G) mobile subsidiary, Hutchison 3G (H3G) Australia. The deal, which ends the long-running saga of whether it was to planning to build its own 3G infrastructure or negotiate an arrangement with the owner of Australia’s only UMTS network, will enable the incumbent to steal a march on its rivals through the early rollout of high speed services in 2005. On 24 June this year it was reported that Telstra and Hutchison Telecommunications had resumed talks concerning a possible network sharing arrangement after the two broke off preliminary discussions in April; at the time it was rumoured that Telstra was also looking to buy Hutchison’s 2G Orange CDMA business. Under the 50:50 heads of agreement deal announced today, Telstra will buy half the Aussie network from Li Ka-shing’s Hong Kong-based company in four instalments, starting in November 2004. The tie-up between the two makes sense as it gives Telstra access to the growing UMTS market at half the cost of building out its own network. Hutchison’s Australian network is reported to have cost AUD1.3 billion thus far, with a further AUD1.7 billion earmarked by the end of 2005, some of which will be used for a heavy marketing push in an effort to switch at least a million Aussie customers onto 3G services. Hutchison too will benefit from the deal as it will defray costs for the newcomer, which has only managed to garner a market share of 3.6% despite owning the country’s sole 3G network.

Telstra now hopes to start a commercial launch of 3G services by mid-2005, utilising the entire H3G network footprint of more than 2,000 base stations covering Sydney, Melbourne, Brisbane, Adelaide and Perth. The new joint venture will expand coverage to the national capital Canberra and other regional centres over the next three years. Commenting on the deal, Telstra CEO Ziggy Switkowski said it was ‘the right solution at the right time’, giving the company a lead on Optus and Vodafone, both of which have announced plans to roll out 3G networks. The company’s chief financial officer John Stanhope added that the deal would give the company a tried and tested solution at half the cost of building one itself, although Telstra concedes that there are still challenges ahead and it will have to spend AUD114 million on the core network over the next three years.

PriMetrica’s GlobalComms Database