Daily ShareChat: Telecom

By Jenny Ruth

Monday 29th March 2010

The New Zealand government's plans for rural broadband and reform of the Telecommunications Service Obligations (TSO) "adds to the long list of Telecom's unfavourable regulatory outcomes and reinforces our negative view of the company," says Tony Sherlock, an analyst at Aegis Equities Research.

The new Telecommunications Development Levy will add $42 million a year to Telecom's operating costs and the new TSO will mean it won't receive about $23 million a year it previously received from other industry players for servicing unprofitable rural customers.

However, "we consider Telecom's statement of a $56 million impact to its medium term EBITDA (earnings before interest, tax, depreciation and amortisation) to be a worse case scenario," Sydney-based Sherlock says.

He estimates a $45 million impact to EBITDA a year between 2011 and 2013.

"In the near term, we remain concerned with the elevated risks associated with the regulatory break up of Telecom, the weak New Zealand economy, the intense competition in Telecom's home market and the viability of the Australian operations," Sherlock says.

"While the margin uplift in the first half of (financial) 2010 was encouraging, we are yet to see a turnaround to Telecom's revenues." While Telecom has a high dividend yield, there are more attractive alternatives within the sector, he says.

BROKER CALL: reduce.

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