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Telecom today confirmed it is tendering out its partnership with its internet service Xtra, currently run with Microsoft’s MSN. Media reports indicate MSN is likely to be replaced by Yahoo in a deal that could be tied to the sale of Telecom’s directories unit.

Telecom chief financial officer Marco Bogoievski indicated at its annual result briefing last month that it was reviewing its MSN partnership, which is due to expire late this year or early next year.

Telecom is reported to be wooing both Yahoo in conjunction with Australia’s Seven Network and Google as replacements for MSN.

If Microsoft is dumped, it will a complete the unravelling of a relationship which in 2001 was close enough for Microsoft to have purchased $300 million of Telecom convertible notes.

The notes, repurchased last year, were bought when Telecom and Micosoft announced the partnership that united their internet portals.

The Australian newspaper reported last week that Yahoo7 was the preferred suitor.

Yahoo’s 255 million email customers worldwide outnumber MSN Hotmail’s 234 million and dwarf’s Google Gmail’s 49 million.

If MSN Microsoft is dumped, XtraMSN will be dropped as the default home page in for New Zealand customers of Microsoft’s web browser, Internet Explorer.

Microsoft is also reviewing its delivery of the MSN and Windows Live services to the New Zealand market via Telecom.

Yahoo7 was understood to be in detailed discussions with Telecom about a long-term alliance designed to underpin the telco’s online strategy and tie in with its desire to sell its directories service, The Australian said.

Telecom is reviewing its ownership of its directories division, which many telcos around the world have sold for large profits.

Mr Bogoievski told The Australian that Telecom was thinking about how it was going to integrate online local search with its future communications services.

He noted telco Yellow Pages divisions would struggle in future against big international browser companies such as Google, as the latter geared up to compete in that market.

“Today, if you look at Google, Yahoo and MSN, they have all got quite attractive products that integrate search with communications.”

Mr Bogoievski said Telecom’s preference was to partner with one of the big three, rather than compete.

“We think we have found a partner we can work with and we are negotiating the aspects of that arrangement now,” he said.

The Australian said it understood Yahoo7 was the preferred partner.

Yahoo7 and Ninemsn, the nine-year-old Microsoft joint venture with James Packer’s Publishing and Broadcasting Ltd, both have internet platform rights for the Australian and NZ markets.

Computerworld magazine said, assuming Telecom dumped MSN, an issue would be whether Microsoft NZ, set up a local MSN or Windows Live services delivery site, or bolt one on to its Australian operation.

The online magazine said Telecom had figured out its business was to supply the network connections people want rather than dabble in content and services provision.

“Although XtraMSN usually pops up at the top of any traffic rating survey, it hasn’t made much of a mark locally,” said ComputerWorld.

“It’s seen as a default homepage provided by two large corporations promoting their own interests rather than an innovative provider independent content.