Davnet, an Australian telecom company, has apologized to New World Telephone today in order to avert legal action by the Hong Kong operator. The dispute arose over comments Davnet made following the breakdown of negotiations to take a 74% stake in New World's fixed line business.

Melbourne-based Davnet said at the beginning of June that talks between the two companies broke down because New World was losing revenue, market share and staff. New World Development, the real estate parent of New World Telephone, immediately denied it was losing market share or that it had lost staff in significant numbers, and threatened legal action.

Davnet has now admitted its error. "Davnet recognizes that the statements made regarding 'rapid depletion of quality employees and staff morale' in New World Telephone, decline in its market share in the fixed line business and significant loss of staff are untrue," the company said in a statement.

"In the circumstances we unreservedly retract and withdraw them and sincerely apologize to New World Telephone, the New World Group and the Cheng family. We have conveyed our regrets and apology in private to the representatives of the New World Group. Davnet and New World Telephone are now prepared to explore any future business alliance for the benefit of both parties."

New World Telephone says it's in talks with several companies about selling its fixed line phone business. It also plans to sell at least 20% of its mobile phone business. While the fixed line business is unprofitable, the cellular business broke even in the first quarter of this year, the company says. New World is the fourth largest of Hong Kong's six mobile operators, with 600,000 subscribers, or a 12% market share. It's the smallest of the four fixed line operators, with a market share of between 1% and 2%.

Davnet installs infrastructure for data networking, video conferencing, internet and voice communications in high-rise buildings. It had hoped to acquire the New World stake to help it expand across Asia.