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Daily ShareChat: Telecom

By Jenny Ruth

Tuesday 4th May 2010

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 Jenny Ruth

The Commerce Commission is likely to recommend regulating mobile termination rates (MTR) when it reconsiders its position which will probably impact Telecom's operating earnings in the year ending June 2012 by about $30 million, says Guy Hallwright, an analyst at Forsyth Barr.

The commission's decision is due in early June.

Hallwright's forecast is "assuming around 50% to 85% of the MTR reduction is passed through into mobild and fixed-to-mobile pricing, and price elasticity of around 25% to 50%."

This could mean anything from a $10 million to $50 million impact on (earnings before interest, tax, depreciation and amortisation (EBITDA) in financial 2012 with $30 million being his best guess.

"There would probably be only a minor EBITDA impact in 2011," he says. However, Telecom's 2011 earnings will be hit by other regulatory changes, price pressures and slower growth of its fault-plagued XT mobile network which implies a substantial cut to its dividend, Hallwright says.

The government has asked the commission to reconsider its recommendation that the government accept Telecom's and Vodafone's undertakings on MTRs in light of Vodafone's recently introduced mobile offer of very cheap calls to other Vodafone mobiles while maintaining higher prices to other mobile networks.

Hallwright expects Telecom's share price is bottoming but that the newsflow will remain negative for the nest several months.




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