PowerTel teams up with iiNet to take on the big boys

26 May 2006

Sydney-based telco PowerTel has agreed to acquire a 14.9% stake in Western Australian ISP iiNet for AUD13.94 million (USD10.6 million), or AUD0.85 per share, a 50% discount on iiNet’s AUD1.69 share price before it stopped trading its shares last month. At their peak, iiNet shares were trading at AUD3.4 in September 2005. PowerTel is a major player in the wholesale internet market, whilst iiNet is the country’s third largest residential broadband provider, with 6% of the market at the start of 2006. Under the terms of the deal the two companies will share network infrastructure, allowing them to compete more effectively against larger rivals Telstra and Optus. The pair’s combined national IP infrastructure boasts 262 exchanges nationwide, and the widest ADSL2+ coverage of any network.

iiNet has been working hard to develop a nationwide network, but its bold expansion has dented its balance sheet. It ended fiscal FY 2005 with borrowings up 1,345% to AUD65 million. The company is expected to return to trading on Monday with a revised EBITDA outlook of AUD24.6 million for FY2006, before abnormal items, down from AUD40.1 million. The downgrade is due to several one-off costs incurred since January and higher than expected investments in its network. It has forecast full year revenues of approximately AUD250 million. ‘We are extremely disappointed to report this downgrade,’ iiNet managing director Michael Malone said in a statement. ‘There are a number of reasons that have combined in this half to produce a result that is significantly less than our market guidance… We recognise that this situation is unsatisfactory for shareholders, but the company remains in a good position, with over 600,000 services and Australia’s largest ADSL2+ network.’

Australia, iiNet (incl. Internode)