ELIZABETH KNIGHT July 12, 2012
Telstra's experiment setting up a telco across the Tasman ditch has been abandoned after more than a decade of failing to reach a meaningful share of the market.
Even in New Zealand's largest city, Auckland TelstraClear had only 6 per cent.
Over the years under various previous managements Telstra has used its massive cash flows to attempt offshore expansion. None has fired and some have been extremely costly.
The current regime under David Thodey has steadily negotiated its way around tidying up some of these offshore operations.
The $680 million sale price is a positive surprise - although it does come with a forex sting - and this will come through Telstra's accounts as two impairments, one in 2012 and one in 2103.
There was little point in Telstra holding on to this business whose contribution to the group's profit was barely discernible.
The buyer Vodafone, will emerge with a market share in New Zealand of more than 20 per cent.
Meanwhile, the proceeds from the sale won't make a significant impression in Telstra's expected $2 to $3 billion excess cash flow.
In other words, this deal will not affect Telstra's existing policy on capital management.
But investors should see the move as good news - as they have in early trading. It sends a positive sign that non-core underperforming assets will not be retained.
And it adds to the already positive sentiment around the stock created this week by its declaration that it would not buy the cash-strapped Nine Network. The six straight days of rises have sent the stock to a level not seen since late 2008.