Telstra bid for Leighton backhaul could face tough regulatory road

Analysts are doubtful a Telstra bid to acquire Leighton’s telecom assets would make it to the finish line. Such a Telstra move could be a “blocking strategy” to stop an overseas player from coming in, Gartner analyst Geoff Johnson told Computerworld Australia.

Leighton said in September that it was taking offers to sell telco subsidiaries NextGen Networks, Metronode and Infoplex. Citing “multiple sources,” the Australian Financial Review today reported the big telco is making a move for the assets, which are estimated to be worth $1 billion.

“We wouldn’t rule anything out if it made commercial sense,” a Telstra spokesman told Computerworld Australia.

However, Telstra may face difficulty getting regulatory approval for the deal from the Australian Competition and Consumer Commission. Sims told the AFR that the regulator would closely look at any move by Telstra or SingTel Optus to grow their backhaul business.

“I can't see Telstra's interest translating into action on the backhaul component, as there are too many opposition barriers,” said IBRS analyst Guy Cranswick. “Maybe Telstra are simply talking their game or in fact looking at the other key assets, not the backhaul.”

“On the one hand it makes a good fit, and the value is evidently there, and that's why the regulators and government would step in,” Cranswick said. “In terms of Infoplex and Metronode those are businesses that would do well with Telstra's expansion strategy.”

Gartner's Johnson agreed there could be regulatory difficulties. “It could have legs but it seems like a bit of a longshot to me.”

The Leighton assets may also be attracting interest from abroad. Level 3 is a US network provider that could make a move for Leighton subsidiary NextGen Networks, Johnson said.

Telstra may be thinking of taking the Leighton assets “before someone else snaps it up, particularly an overseas player” like Level 3, he said. “Telstra doesn’t need the capacity—they’ve got enough in their own networks.”

Level 3 hadn't returned a request for comment at time of publication.

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