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Mobile & Wireless
Vodafone bulks up its Australian presence
Merger with Hutchinson "3" changes the country's telecom landscape to 3 significant players
by Ek Heng, Asia-Pacific Correspondent
Australia’s third and fourth ranking mobile carriers, Vodafone Australia Ltd and Hutchinson 3G Australia Pty Ltd, have formed a joint venture to rationalize resources and operations as well as to strengthen their competitive position in the country.
The two Australian units of global telcos, Vodafone Group and Hutchinson Telecommunications, are setting up a 50-50 joint venture named VHA Pty Ltd. The new company will start with a customer base of six million subscribers and a turnover of A$4 billion (US$2.7 billion).
It is a joint venture borne out of necessity in the wake of tough economic conditions faced by Vodafone Australia and loss-making Hutchinson unit. Touching on the development, Vodafone Global’s chief executive Vittoria Calao said the transaction creates a new company with the ‘necessary scale to compete strongly’ in the mobile market.
VHA will market products and services in the country under the Vodafone brand but retains exclusive rights to use the “3” brand during the transition and thereafter. The deal is subject to regulatory and shareholders approval and is expected to be completed by mid-2009.
To account for the difference in value between the two businesses, an A$500 million (US$336 million) deferred payment will be structured as a shareholder loan from Vodafone to VHA and it takes precedence over any shareholder returns, and over the repayment of interest and principal of any other VHA indebtedness, said a statement issued on the merger. “The loan is on an arm’s length basis and is expected to be repaid or refinanced within 18 months from completion.”
With the rationalization of operations encompassing procurement, product development, IT support, networks, commercial operations and administrative expenses, the statement added that the move will lead to significant cost saving of up to A$2 (US$1.3 billion) billion. Some job cuts are likely but the extent will be made known only when details have been worked out by the new company.
Hutchison Australia’s chief executive Nigel Dews heads the new entity as CEO, while Dave Boorman, currently holding the same post at Vodafone Australia, will be chief financial officer of VHA.
With its combined resources, VHA poses a credible threat to second ranking Optus, which has 7.6 million subscribers and more than A$4 billion (US$2.7 billion) in revenues. In response to media queries, Optus’ chief executive Paul Sullivan indicated that it is well positioned to use its larger scale and greater cash flow to maintain its edge, including the bundling of mobile with fixed line and Internet access capabilities.
On the issue of Optus-Vodafone relationship, Sullivan said the two companies have ongoing joint venture for coverage in metro areas and he will have to await further details about the new entity before coming to a decision.
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