Daily ShareChat: Telecom

By Jenny Ruth

Thursday 13th May 2010

Telecom's prospects hinge around its ability to protect its share of the cellular and broadband markets, given the level of regulatory and competitive pressure expected in the next few years, says McDouall Stuart.

Given regulation will endeavour to foster competition, it is inevitable Telecom's market share will decline, it says. "Price competition should stimulate industry volume growth but revenue and margins are at risk."

The uncertainties about Telecom's future regulatory and competitive landscape could continue to undermine its share price.

It expects mobile termination rates of both Telecom and Vodafone will decline over the next five years.

"Whether the company has an exposure to the ultra fast broadband (UFB) initiative by the Government is critical to its prospects," the broker says.

Telecom's recent quarterly announcements reveal relatively steady operating earnings with cost-out matching revenue falls. The impact cost cutting will have on future revenue remains to be seen, it says.

"The Australian operation, AAPT, following its merger with PowerTel should improve performance but has yet to deliver adequate returns. The gradual consolidation occurring in the industry could lead to Telecom's withdrawal from Australia."

McDouall Stuart says it expects Telecom's dividends to decline. It is forecasting the annual payout will decline from 24 cents in the year ending June 30 to 15.5 cents the following year, 14.3 cents in 2012 and 13.9 cents in 2013.

BROKER CALL: hold

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