iiNet pays $60m for AAPT consumer business

ISP iiNet has confirmed with the Australian Stock Exchange that it plans to acquire the consumer business of AAPT for $60 million.

The deal will see iiNet acquire 113,000 DSL customers and 251,000 "other" consumer connections. It was expected to be completed in September 2010.

In addition to buying the customer base, iiNet would pick up AAPT's webmail domain, consumer billing system and the telco's outsourced consumer call centre in Manila, which employed about 250 staff.

About 40 AAPT employees would come across to iiNet, mainly staff responsible for managing the billing system and other core systems.

"Other aspects of the AAPT organisation we'll effectively rent from them," iiNet chief financial officer David Buckingham said.

Buckingham said the company had inked a "12-month transitional services arrangement" where AAPT would sell network services back to iiNet "at good commercial rates."

Debt funded

The ISP has indicated it will finance the acquisition through cash and debt to avoid diluting its shares.

AAPT's parent company Telecom New Zealand has meanwhile offloaded all Australian assets, aside from its AAPT/PowerTel fibre business.

Today it announced that it sold its 18.2 percent stake in iiNet to institutional investors. Yesterday, it sold down its stake in Macquarie Telecom.

Buckingham said the sale was unlikely to have gone through had these sell-downs not occurred.

Customers migrated

About 20,000 of AAPT's broadband customers - understood to be those in Sydney - will be migrated from AAPT/Powertel DSLAM infrastructure to iiNet's network.

But this wouldn't occur in the first 12 months.

"We have a wholesale agreement with AAPT which means we have customers on Powertel DSLAMs and in excess of 20,000 customers on our DSLAMs," iiNet's chief regulatory officer Steve Dalby said.

"There will be some rationalisation of those [billing] arrangements," he said.

"On the first day of the new year - 12 months later - we'll start migrating those customers across [to iiNet infrastructure]," Buckingham said.

The end of AAPT unlimited

Dalby also confirmed yesterday's comments by iiNet chief Michael Malone that iiNet was unlikely to continue with the unlimited plans offered by AAPT.

"That's been a headline product for them that they've marketed very strongly," Dalby said.

"It's not a model we've pursued ourselves."

He said that unlimited plans "might be good for bragging rights" but they were unnecessary given that most subscribers could live on much smaller monthly quotas.

iiNet flagged "a lot of analysis [generally] on the [AAPT] customer base" in coming months, including the distribution of plans and their relative profitability.

"That detailed analysis will start fairly soon," Dalby said.

Buckingham added: "We have to take a view on product positioning and repricing products where they don't make sufficient margin. That will start from September."

Unfazed by unprofitability

Buckingham was unfazed by the financial problems that had dogged AAPT over a number of years.

"It's fairly well known that the AAPT business has suffered from declines," he said.

"We're not worried about that. We think we're paying an absolute steal of a price."

Shareholders of iiNet will be asked to vote on the deal at an Extraordinary General Meeting yet to be scheduled, but planned for some time in September. 

Major shareholders Amcom and CEO Michael Malone's [pictured] investment vehicle 'Perth Internet', which together own 34.2 percent of iiNet shares, have indicated support for the deal.