OneTel's failure hits Australian telecom competition

The failure of Australia's fourth-largest carrier, One.Tel Ltd., on Wednesday marks "a black day" for telecommunication competition in Australia, according to local independent telecommunication analyst Paul Budde.

One.Tel was placed into the administrative care of Ferrier Hodgson Group on Wednesday, after auditor Ernst & Young LLP said that a A$132 million (US$68 million) capital-raising bailout would be insufficient to keep the company solvent.

From 11 main carriers in the market in 1999, the figure had dropped to nine in 2000. By the end of this year there will be six and by the end of 2002 only three or four, Budde estimates.

"OneTel ... has been critical to getting better prices into the market," Budde said in a report. "In order to make sure that we don't fall back to the monopoly days, the government will have to step up its activities to open up the market. After five years of legal wrangling, the underlying policies for competition have still not been implemented as (former monopoly carrier) Telstra (Corp. Ltd.) has been successful in delaying their introduction."

Budde attributed One.Tel's failure to "arrogance, greed, hyped-up information to cover up mistakes, bad decisions and so on," with considerable blame falling on media moguls Kerry Packer and Rupert Murdoch. Both made strategic investments in One.Tel, but failed to keep a sufficiently close eye on the company, allowing their sons to manage the relationship with One.Tel, which proved fatal, according to Budde.

An expensive foray into buying wireless spectrum in Australia and Europe, and in building a nationwide GSM (Global System for Mobile communications) network in Australia rather than leasing capacity proved to be the killer blows.

"Earlier this year I still thought that they could redress the balance," Budde said in the report. "Little did I know that the two directors failed to properly inform their friends James Packer and Lachlan Murdoch that the financial situation was far worse than they had told them. The situation proved to be so bad that it was impossible to save the company."

The failure of One.Tel has implications for its technology supplier Lucent Technologies Inc., which is also a major creditor. One way forward would be for One.Tel to sell its almost-complete GSM network, but the lack of competition will make this difficult, according to Budde.

"It has a A$1 billion network that it doesn't need, and for that matter nobody needs in Australia, as there is already an oversupply," Budde said in the report. "So it will be very difficult to sell this network at its real value; it needs to be heavily discounted to attract a buyer."

The onus is now on the Australian government to preserve what competition remains, according to Budde.

"The Productivity Commission is addressing these (policies for competition) issues but we do need the political will from the government to make it happen, this has so far not been forthcoming."

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More about Ernst & YoungErnst & YoungFerrier HodgsonLucentLucent TechnologiesOneTelOne.TelProductivity CommissionTelstra Corporation

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