Optus CEO stokes IPO speculation

Optus IPO makes sense but will be contingent on NBN, Telstra separation says analyst

Optus chief executive officer Paul O'Sullivan has further stoked speculation parent company SingTel may sell or float its ASX-listed subsidiary Optus.

Speaking on ABC Television at the weekend, O'Sullivan said Singtel had as yet “made no decision to do an IPO of the Australian business.”

“I think the [Sept 09 quarter financial] results show you we're busy running and growing our business here and making sure it's a success and really an IPO from my point of view really is a side issue,” he told Inside Business.

Telecommunications analyst Paul Budde said given the differing requirements of Singtel’s mature Singapore and Australian businesses compared to its booming, but less developed, Asian businesses, meant an Optus IPO made strategic sense.

“The big growth is coming from markets other than Australia and Singapore so if you want to invest further in those areas then you need to shift money from one end [of Singtel’s business] to the other. An IPO is one option to do that,” he said.

Budde said in light of the NBN, Optus would likely be forced to review its position in the market and assess whether it wanted to compete or participate in the NBN Co with its own infrastructure.

“That’s an opportune time, when changes are going to happen anyway, to look at the whole picture – what’s happening with Singtel, what’s happening with the NBN – and what the opportunities are,” he said. “You could look at breaking Optus up into sectors – broadband, mobile, infrastructure – and do different things with them if it makes sense.

“There are all sorts of things they could do but it all depends on the outcome of Telstra’s negotiations with the government. You wouldn’t make any decisions [about an IPO] until you know exactly what’s happening with the NBN Co and where Telstra fits in and what that then means for other companies as well.”

Budde said putting a dollar figure on a potential Optus float was difficult, however the company was a successful one in strong financial position so was likely to attract a premium.

“At the same time a lot of Optus future success relies on its own strategic position in relation to the NBN, so before you can put a real value on it you need to find out where the real value of the company is – is it the mobile, broadband, infrastructure?” he said.

O'Sullivan also emphasised Optus’ support for the roll out of the NBN, despite Optus own proposal for a fiber to the node network being rejected by the Federal Government.

“It's a completely different approach and network which we welcome by the way because we think actually it's the right network for Australia,” he said. “We … need to get on with it. We need to stop the delay. We need to build this network now because of what it can offer Australia.”

Optus would also be a major beneficiary of the NBN through its ability to open up access to the $8 billion residential home market – a market that had previously been closed to the company, O’Sullivan claimed.

“The high bandwidth that goes into homes will offer a whole range of services and it will also mean that we can converge what you do to your home - let's say how you store your photos, what you do with your music - with what you do on your mobile device,” he said. “So we see a lot of synergies between our mobile business and the home business.”

Budde concurred with O’Sullivan’s view stating that if “blockages” were taken away in the residential market the company was far more likely to improve its market share in the segment.

“At the same time, however, it clears the way for everyone else - media companies, Google – can all become part of this retail market,” he said. “So the question becomes can these telcos compete with these media and marketing companies who may not have the technical skills but may be better at customer service.”

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