Telstra Confirms Plans to Buy OzEmail
Telstra Corp., Australia’s biggest telephone company, confirmed it plans to buy OzEmail Ltd. from MCI Worldcom Inc. for more than A$300 million, or $197 million, to double its Internet subscriber base.
The Melbourne-based company said it has signed an agreement with MCI Worldcom to buy the OzEmail consumer Internet service provider business. OzEmail’s brand will be retained and Telstra will purchase network services from MCI Worldcom’s Internet unit. OzEmail ranks behind Telstra as Australia’s No. 2 Internet service provider, or ISP.
“The proposed purchase will see Telstra retain OzEmail as a strong stand-alone business,” Telstra said in a statement. The accord is subject to “further negotiation,” approval by the boards of the two companies and “there being no opposition to the acquisition” from Australian antitrust authorities.
MCI Worldcom, the No. 2 U.S. long-distance company, has been seeking to sell the OzEmail consumer ISP business to focus on expanding its Australian corporate data network. It bought the company for A$520 million last February and since then its growth has slowed as an influx of new entrants has increased competition and lowered prices for consumers.
The purchase will almost double Telstra’s online customers to 840,000, or 40% of the Australian market. The OzEmail brand will be retained, though its networks will be combined with those of Telstra. Telstra’s shares were 11 cents higher at A$7.95.
Telstra Chief Executive Ziggy Switkowski has made investments in data and Internet businesses a top priority. His aim is to use OzEmail to make Telstra the Australian equivalent of America Online Inc., people familiar with the situation said. AOL is the world’s largest Internet service provider and dominant in the U.S.
This would be Telstra’s first big acquisition since it first sold shares to the public in November 1997. It has spent a total of A$410 million buying stakes in several small companies, notably Sausage Software Ltd., Solution 6 Holdings Ltd.--Australia’s largest accountancy software supplier--and Computershare Ltd., the No. 1 securities software company. Telstra is 51% owned by the Australian government and is not allowed to issue shares to finance acquisitions.
Telstra can use OzEmail to help stave off competitors such as No. 2 phone company Cable & Wireless Optus Ltd., One.Tel Ltd. and online provider Eisa Ltd., which all posted strong gains in subscriber numbers last year.
As recently as November, Rupert Murdoch’s News Corp. Ltd. considered buying OzEmail for A$450 million, then decided against it, people familiar with the situation said. News Corp. officials declined comment. Clinton, Mississippi-based MCI Worldcom accepted the lower price so it can concentrate on building its worldwide data network, which will reach 95% of online business users within 18 months, the people said.
Telstra is accelerating its push into Internet businesses and overhauled its various online services last month. The company has set a target of 100,000 high-speed cable modem Internet users this year and will soon offer access to the Web via mobile phones.
OzEmail has about 370,000 online subscribers who access the Internet through the traditional dial-up telephone service. Telstra has about 470,000 users.
Its nearest competitor, Cable & Wireless Optus, has about 120,000 dial-up Internet users, making rapid gains after only entering the market in early 1999. There are more than 700 Internet service providers in Australia though about 600 of them have fewer than a thousand subscribers, and analysts predict there will be more buyouts of local providers. The no. 2 Singaporean Internet provider Pacific Internet Ltd., and Asia Online Ltd., Softbank Corp.’s Hong Kong-based online provider, have already made acquisitions here.
Average Australian monthly online user charges have dropped to A$35 from A$50 in the past year, which has resulted in OzEmail losing up to 5% of established customers each month, even as it gains new clients, the people said.
Telstra has already spoken with officials at the nation’s competition regulator, the Australian Competition and Consumer Commission, about the transaction.
In May, the commission blocked a A$1.5 billion takeover bid by Cable & Wireless Optus for No. 3 ranked phone company AAPT Ltd., on the grounds that new entrants would take considerable time to replicate AAPT’s phone network.
People close to the situation said Telstra was confident it would get approval for the OzEmail acquisition because of the strong growth of its competitors, and the open nature of the Internet.
