Asian telco giant Pacnet is offering $US420 million (about NZ$795 million) for Telecom's Australian business AAPT, Reuters reports.

A source told Reuters that Pacnet, which was formed earlier this year from the merger of Asia Netcom and Pacific Internet, would fund its offer with cash and equity.

AAPT has been a thorn in Telecom’s side since it paid top dollar for
the telco in 1999. Last year Telecom paid $A357 million to acquire another Australian telco, PowerTel, to give AAPT a bigger reach and more customers.

Telecom spokesman Mark Watts would not confirm or deny whether AAPT had received an approach from Pacnet, saying it was Telecom’s policy not to comment on speculative articles.

“They’ve run a large speculative flag up a large speculative flagpole, and concocted a story out of it,” he said.

“What I can confirm is that we are committed to the AAPT business.”

Pacnet is Asia’s largest independent telecommunications service provider and owns Asia's longest piece of submarine cable infrastructure – the 36,800km EAC-C2C.

It has more than 1400 employees across 27 offices in 13 countries.

The Reuters source said Pacnet was interested in AAPT's capacity to round out its broader Asia network as it eyes a potential initial public offering as soon as next year.

Telecom’s share price is down 3.4% in early trading today to $2.25.