AAPT DSLAM proposition "high-risk": Analyst

Summary:A decision by embattled telco AAPT to invest in its own ADSL network would be "high-risk" and could make the business less attractive to suitors in the event of a sale, according to telecommunications research firm Ovum.

A decision by embattled telco AAPT to invest in its own ADSL network would be "high-risk" and could make the business less attractive to suitors in the event of a sale, according to telecommunications research firm Ovum.

The comments from Ovum senior analyst David Kennedy came yesterday after AAPT's owner Telecom New Zealand told analysts at a briefing earlier this week that building a new ADSL network was one alternative option for AAPT should negotiations with an increasingly hostile Telstra over a new wholesale access agreement reach an impasse.

In documents sent to the Australian Stock Exchange, Telecom said AAPT could serve 50 percent of its consumer customer base by installing its own hardware in 125 telephone exchanges, and 61 percent of business customers with only 16 exchanges.

In a telephone interview with ZDNet Australia yesterday, Kennedy said such a move would certainly allow AAPT to make greater margins from selling broadband, but also had a downside.

"In the market at the moment there's a good deal of regulatory uncertainty about ULL [unconditioned local loop] pricing, and what that would mean is that if they were to take a decision to roll that infrastructure out now, it would be a relatively high-risk proposition for them," he said.

The pricing of competitors' access to ULL -- which refers to Telstra's copper fibre running between customers' premises and telephone exchanges -- is currently the subject of a long-running debate between the incumbent, the government and the nation's competition regulator.

The analyst's comments echo those of Stuart Marburg, managing director of Internet service provider Netspace.

Marburg said in late February that his company wouldn't yet commit to expanding its ADSL2+ network past Melbourne due to the instability of the fledgling broadband industry.

"I would be surprised if they [AAPT] announced any firm plans before there is some resolution of that ULL pricing issue," said Kennedy.

The analyst also said rolling out ADSL hardware might impact on any possible sale of AAPT. Telecom said back in December that it was looking at merger, divestment or retention options for the business.

During the briefing, Telecom said any option must allow it to deliver trans-Tasman services, and it expected to be able to update the market on the issue during its third-quarter results session.

"I think in the short-term, the implication would be if they are committing to a major infrastructure investment, obviously that's going to show up on their bottom line as increased cost, and to that extent it would make them less attractive," said Kennedy.

"There's been speculation and I gather even discussions between Optus and Telecom New Zealand about Optus taking over AAPT," he continued.

"But Optus are building out their own [ADSL] network, and I think they'd regard any investment that AAPT would put into it as simply redundant. From the perspective of Optus at least, I don't think it would improve the case for Optus buying it at all."

Although Kennedy noted any move by AAPT could be considered tardy as players like iiNet were already offering services on th back of their ADSL networks, he also said ultimately it might be necessary for the telco to follow suit.

"There are two ways of looking at that: you can regard it as being too late, the alternative view is that it's simply going to be regarded by customers as a requirement in the future, that you actually have your own ADSL infrastructure, that you can deploy and mount your own services across," he said.

"Certainly if the ULL access regime allows infrastructure owners to do that more cheaply than wholesale DSL resellers then you're really in a position where you have to consider it," the analyst concluded.

Topics: Telcos, AAPT, Telstra

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