Austar is likely to pull out of its co-ownership of telecomms company TelstraSaturn by the end of the 2004 financial year.
In an announcement to the Australian Stock Exchange, Austar says it has renegotiated its agreement with co-owner Telstra Australia to allow Austar to sell its 50% stake to Telstra should it want to.
The selling off is "a fairly likely outcome, I'm afraid", says Austar head of corporate affairs Bruce Meagher. "It's not something we'd do in an ideal world, but things being what they are we need to make some changes."
Austar, and its owner UnitedGlobalCom, have both been badly hurt by the recent economic downturn in Australia and the US.
"Austar had a gap in the funding required to reach a positive cash flow and by reaching this agreement to pull back out of New Zealand we can bridge that gap," says Meagher. The agreement will see Telstra paying Austar's share of TelstraSaturn funding.
An Austar statement to the Australia Stock Exchange says under the terms of the restructured arrangement, Telstra will, in the short term, contribute funding in the form of subordinated debt. The remaining terms of the agreement are confidential.
Neither Telstra Australia nor TelstraSaturn would comment on the announcement. Only two months ago Meagher was claiming Austar would remain in the New Zealand market for the long haul.
"The market as a whole is at $5 billion and growing and we feel our investment will be able to net a healthy return for us," he said at the time.
Already in Wellington, TelstraSaturn's home market, the company has a 22% share of the pay TV market, alongside a similar number for users on its ISP. Meagher was "quite happy" with that level of penetration in the market.
Meagher does say that Austar is still involved with the day-to-day running of TelstraSaturn and that will continue.
"We've got a seat on the board and it's really in our best interests to make the company a highly successful one. If we sell out we'll want the best price, and if we don't we want the best return on it for our investors." Meagher says Telstra is demonstrating its commitment to the New Zealand market in the long term by agreeing to buy out Austar should it need to.