AOL Australia Flails at AAPT Connection

AOL Australia
is reportedly considering an equity deal with telecommunications carrier AAPT to lift it out of the doldrums it
has been in since its underwhelming debut two years ago.

Shares in AAPT were frozen on the Australian Stock Exchange this week after
the company admitted it was in discussions with the local subsidiary of America Online.

“These discussions have not concluded. In particular, the pricing and
timing of any transaction which might result from these discussions have
not been
finalised,” the company said in a statement to the ASX on Tuesday.

The opportunity has arisen with the exit by German media giant Bertelsmann
AG from a 50/50 partnership with America Online in both Australia and Europe.

While it might be expected that AAPT would be the junior partner, in fact
it is AOL which is desperate for an infusion of Australian blood. After a
lacklustre launch, AOL Australia has been estimated to have on at most
25,000 users.

AAPT’s own ISP service, Smartchat.net, is thought to exceed
that number in membership, despite being launched after the local AOL.
Also, AAPT’s wholly-owned subsidiary Connect.com.au was the first ISP in
Australia to build an Internet backbone network, and its customers number
in the hundreds of thousands.

To top it off, AAPT currently has 500,000 users of its telecommunications
services, including a 15 cent flat local call service. This customer base
would no doubt seem more enticing that Bertelsmann AG’s book club memberships.

The deal could be a blow for American-based telco Uunet, as it currently has the contract to
provide the ISP hardware and connectivity to host and run the AOL service.
AAPT’s resources would be able to easily cover the extra load of AOL’s users.

The deal would continue a trend of deals and new ventures aligning consumer
ISP operations with the four major Internet backbone networks in Australia:
Cable & Wireless Optus with its
buy-out of Microplex and the establishment of its own Optus Internet ISP
arm; OzEmail’s buy-out by Uunet; and Telstra‘s failed efforts to buy OzEmail’s
consumer division to add to its existing Big Pond service.

AAPT is 80 per cent owned by Telecom New
Zealand, after a market-based takeover last year which was opposed by
the AAPT board but which its shareholders accepted readily.