Telecom shares retreat after Govt announces new review

By NZPA

Tuesday 16th January 2007

Telecom shares, recently on a roll on expectation it will sell its directories unit, today fell on the threat of further intervention from the Government.

Telecom shares fell 7 cents to $4.95 in late afternoon trading. Brokers said the fall was also due to profit taking following a strong run up to an eight month high yesterday.

Telecommunications Minister David Cunliffe today announced a review of Telecom's "Kiwi Share" obligations relating to the provision of rural Internet services.

The Kiwi Share, now known as the Telecommunications Service Obligations (TSO), was set up when Telecom was privatised in 1990 and guaranteed free local calling to all regions.

Cunliffe said the TSO was being reviewed to ensure it took account of fast-changing technologies. It would scope whether the TSO should cover rural broadband Internet access.

Cunliffe signalled the rules would be tightened rather than relaxed, saying New Zealanders should all have access to affordable basic telephone services.

"We have no intention of moving away from the basic principle in the Kiwi Share of preserving free local calling for residential telephone users."

Restrictions on ownership of Telecom, which give the Government a say on any foreign entity owning over 49.9%, or any entity owning 10% or more, would also be reviewed.

In May, the Government sent Telecom's share price spiralling down, losing one third of its value, when it announced it would force the company to open its network to Internet rivals.

The shares have since recovered over half of their value. They rose over $5 yesterday as investors bet Telecom will get a high price from the sale of its directories division.

Cunliffe said the review would consider a number of issues concerning the effectiveness of the TSO in providing local service, including the regulations and rules controlling how TSO instruments were administered.

A discussion document will be published in the first half of this year, inviting submissions from the industry, user groups and other interested parties.

Cunliffe said the review, to be co-ordinated by the Ministry of Economic Development, would be conducted in parallel with the Government's Rural Broadband Strategy aimed at ensuring acceptable rural phone and Internet services. New Zealand First welcomed the review and slammed the company for yesterday announcing price hikes for residential users.

"This is a blatant exercise in the exploitation of Telecom's monopoly for profiteering purposes," NZ First spokesman Brian Connelly said.

"Telecom is continuing to exploit its very high degree of market power, ignoring efforts to increase competition and create more even pricing across the market."

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