UPDATE: Telstra in Talks to Sell TelstraClear to Vodafone New Zealand

-- Telstra is in talks with Vodafone New Zealand to sell Vodafone its TelstraClear subsidiary

-- Telstra says no certainty an agreement will be reached

-- Analyst says Telstra could redeploy capital from sale

(Adds analyst's comments in 3rd and 4th paragraphs, background from 5th paragraph.)

 
   By Gavin Lower 
 

MELBOURNE--Telstra Corp. (TLS.AU) said Tuesday it is in discussions with Vodafone New Zealand about the possible sale of its New Zealand subsidiary TelstraClear.

"Discussions are continuing and there is no certainty as to whether an agreement will be reached," Telstra said in a statement to the Australian Securities Exchange.

Peter Esho, chief market analyst for City Index, said the sale makes sense for Telstra as the company focuses on its Australian mobile and content businesses and seeks to redeploy capital to areas generating higher returns.

"Telstra realizes it needs to do something to diversify its earnings stream," Mr. Esho said.

In April, Telstra said it expected to generate 2 billion Australian dollars (US$1.95 billion) to A$3 billion in excess free cash flow over the next three years, sparking speculation about potential acquisitions.

TelstraClear's sales revenue in the first half of fiscal 2012 fell 3.8% from a year earlier to A$255 million, according to Telstra's earnings report for the six months to Dec. 31.

The company said at the time New Zealand's "highly competitive market," as well as the Christchurch earthquakes and regulated mobile price decreases contributed to the fall.

New Zealand's Commerce Commission said in its annual report in April last year that TelstraClear had a 16% share of home internet connections while Vodafone had 13% and Telecom Corp. of New Zealand Ltd. (NZT) had 49%.

It said Telstra didn't have a mobile network and instead used other companies' networks. It was the largest company retailing cell phone coverage like this, but still had less than 1% of the New Zealand market.

Write to Gavin Lower at [e-mail]