Fairfax/Telstra To Be Australia’s AOL/Time Warner?

Speculation surrounding the online strategy of
newspaper publisher John Fairfax
has come to a head with a front-page story in one of its own
publications stating that it was about to
enter a deal with Telstra.

The Australian Financial Review story
included claims that Fairfax was negotiating to buy Pacific Access, a
wholly owned subsidiary of Telstra, in return for a stake in the ASX-listed
Fairfax which would total as much as 10 per cent. Pacific Access runs the
White Pages and Yellow Pages telephone directories, both in print and Web
form, at a substantial profit.

Morgan Stanley Dean Witter was named in the AFR story as the investment
bank which was handling the transaction. No financial details were given on
the alleged deal, nor did any executives comment to the AFR.

Fairfax issued
a statement to the ASX on Tuesday, saying that it was engaged in talks with
a number of companies, “including Telstra”.

While the deal would be nowhere near the size of the recent America On
Line-Time Wanrer merger, with dollar amounts of AUS$400 million (US$270
million) being discussed, there are some parallels between the business
drivers for both of them.

Like AOL in the U.S., Telstra has significant
control over cable access in Australia, and Fairfax has been eager to enter
the new media world of datacasting for some time now. Fairfax’s Internet
efforts have been more successful that Time Warner’s, but Pacific Access
owns two of the most popular sites in Australia, with White Pages being
number one on several site rankings.

One potential regulatory snag could be Fairfax’s ownership of BIG Colour
Pages, which is Pacific Access’s only competitor in the telephone directory
market. Analysts have also pointed out that Telstra would lose synergies
between its telephony business and the directories if it gave up Pacific

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