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Optus breaks up with TeleChoice after ten years

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Australia’s biggest independently owned mobile phone, internet and telecommunications retailer has been left in the cold after negotiations to renew a ten year retail contract with Optus unexpectedly stalled.

Optus yesterday revealed that it was revising its retail strategy and opening 33 new retail outlets.

In pursuit of that strategy, the carrier is terminating its decade-long retail agreement with TeleChoice, which has been selling Optus and Virgin-branded mobiles (Virgin Mobile is owned by Optus). The contract will expire in March 2013.

The carrier confirmed that it would cease its decade long retail distribution agreements with TeleChoice, which resells Optus and Virgin Mobile services, in March 2013. The retailer operates 155 franchised and company owned stores nationally.

TeleChoice responded by stating that it remains in ongoing contractual negotiations to continue as a retail and corporate reseller for the two brands.

TeleChoice CEO Ehab Abdou said “we recognise that the industry is dynamic and we consider it timely to explore a myriad of opportunities that may or may not include Optus into the future.”

He added that stakeholders would be informed as negotiations progress.

A recent report from Morgan Stanley suggests that as the National Broadband Network continues to expand, it will drive consolidation across Australia's tight telecommunications market.

The sector has already been subject to significant consolidation, with Morgan Stanley saying the number of ISPs has fallen from 467 in 2006 to 372 in 2010.

The biggest protagonists in the consolidation have been iiNet and TPG, which Morgan Stanley estimate extracted between $AU40m and $AU60m of annual cost savings/synergies from these businesses.

“The debate is now whether or not there is room to achieve further value accretion through M&A. We believe there is, with up to $AU95m in synergies on the table,” the report claims.

In line with Optus’s latest moves, carriers have moved to protect themselves from declining revenue streams in the shrinking fixed-line phone segment by offering broadband and mobile services via an acquisition strategy and creating value by extracting synergies out of the acquired businesses.

The report predicts that, post-NBN, it is likely that M& A activity is likely to benefit mid-sized telecom firms making companies like TeleChoice a natural acquisition target. ®

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