Local telecommunications analyst Paul Budde is predicting doom and gloom for Hutchison following the telco's announcement today that it's in discussions with Optus regarding the arrangements under its GSM (Global System for Mobile communication) contract.

Hutchsison, whose Orange GSM service uses the Optus network, confirmed today that it -operates a GSM resale business pursuant to a contract with Optus" and that it was in discussions with the country's number two telco regarding contract arrangements. However, -no agreement has been reached in these discussions," Hutchison said in a statement to the ASX.

Asked if he thought a customer re-sale was in the pipeline, Budde said: -That wouldn't make sense to me unless Hutchison was departing the market...it doesn't make sense that they would get rid of customers."

-Hutchison is totally, totally stuffed," Budde said. -There's no way for them to turn. Whatever way they jump, they jump off a cliff."

According to Budde, Hutchison has made some big mistakes, the first one being its change from being a marketing-orientated business -seen in its resale strategy with Optus - to becoming a technology-driven organisation set on building its own network.

"The two matters are impossible to reconcile," Budde said. -You can't be both."

According to Budde, the amount Hutchison invested in GSM spectrum for its own network - AU$671 million -- has -no relationship whatsoever to a possible return on investment".

With that kind of investment, the carrier would need to lure millions of customers. -There's no way to get that number of customers -- maybe in 1995 but not in 2001," Budde said. "Based on their current business model it's impossible to build a viable network."

Hutchison's second big mistake was its intention to operate in the local call market by introducing 20-cent calls. However, the customer incentive was gone before the service was even launched when Telstra and Optus beat the junior player to the finishing line by dropping their own charges to about 15 cents, according to Budde.

3G will be another thorn in the struggling telco's side, predicts Budde. Although Hutchison claims its 3G services will be rolled out in 2002, the wider belief is that 3G won't eventuate in Australia until about 2004.

-Long before this time Hutchison needs to find another solution," Budde said. 3G is just -another burden on its plate," he added. "Whatever direction you look, there's no way forward for Hutchison."

Budde believes that there must be a bigger picture into which a potential re-sale fits. -I don't think we have the full story. If there's nothing else to it, it's clearly the demise of Hutchison."

With 35-40 percent market share, Optus is in a -reasonably good position" -- it's not in desperate need of customers, however at the right price it would be stupid not to buy them back, according to Budde. But it won't solve the problem for Hutchison and other smaller players, including Vodafone and AAPT, as such a deal will simply serve to further weaken the competition below Telstra and Optus, he added.

Budde says the preferred option would be an industry-wide solution incorporating Optus, Hutchison, Vodafone and AAPT, but acknowledges at the end of the day the bigger picture is likely to see Optus buying out Hutchison and possibly Vodafone and AAPT.

But whilst the future of the three smaller fry is uncertain, one thing is clear, according to Budde, -without a massive write-down of assets, there's no way for the three of them to survive."

The Communications and Public Sector Union is currently investigating claims that Hutchison headquarters in Brisbane, Perth and Adelaide are to close.

However, Hutchison refused to remark on the likelihood of layoffs, saying it did not comment on speculation.

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