iiNet puts Ihug on the block

Vodafone and Orcon among potential buyers of the nation's second largest ISP

Ihug has been put up for sale a mere three years after Australian ISP iiNet purchased it. According to iiNet executive chairman Peter Harley, the decision to sell ihug was made after what he called a large number of "unsolicited approaches" to buy the Kiwi provider.

Grant Samuel in Auckland will manage the sale of ihug. A sales document will be circulated to interested purchasers at the end of the month, with the deal expected to be finalised end of this year.

iiNet intends to use the funds from the ihug sale to reduce debt and to fund business expansion in Australia, Harley says. The Australian provider hit trouble in May when it revealed to the Australian Stock Exchange that it had given the wrong financial forecast and would miss its profit targets. iiNet shares were suspended from trading for six weeks, but received cash injections from two other companies and was able to continue operating.

Ihug began in 1994 under Tim and Nick Wood, but sold the company to iiNet in 2003. The sale included ihug's Australian arm, which was merged with iiNet. However, the New Zealand division kept its name and separate identity.

The Wood brothers pioneered several new services for the New Zealand internet market, including unlimited dial-up connections and satellite broadband. While Ihug started reselling Wired Country wireless broadband in 2004, it has lately focused on reselling Telecom's DSL and also voice services. It is currently the third-largest ISP in New Zealand, with some 90,000 customers.

Under iiNet's ownership, ihug has campaigned for better resale terms for Telecom's broadband and also local loop unbundling. The provider said last year it would commit $20 million towards installing DSLAMs in local exchanges if local loop unbundling was enacted.

However, ihug CEO Mark Rushworth has not confirmed that investment is still on the cards, despite repeated enquiries.

PC World understands that one likely suitor for ihug is Vodafone. The global mobile telephony giant has embarked on a strategy worldwide that entails buying up ISPs to shore up falling cellular revenues through broadband resale. Vodafone has made enquiries with several New Zealand ISPs about buying them, according to industry sources.

In a press release Orcon, the country's fourth largest ISP, has also expressed interest in buying ihug.

"We have been pursuing a purchase of ihug for some time now. I’m pleased to see

that the iinet board has taken on some of our proposals, and offered to place the

business on the market, says Orcon’s General Manager of Operations and Regulatory

Scott Bartlett.

"ihug was a real New Zealand business success story before its ownership went

offshore, this sale process gives us an opportunity to create a 100%

Kiwi-owned telecommunications provider, with the scale and the resources to

take on the foreign owned incumbents."

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