Tuesday 1st June 2010 1 Comment |
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Telecom could improve its long-term outlook by carving out its network assets to participate in the government’s $1.5 billion roll-out of high-speed broadband, though it will face short-term credit pressures.
Moody’s says Telecom could benefit from joining the government’s ultra-fast broadband initiative and structural separation through increased internet revenues and lower regulatory costs, though the company’s existing copper lines provide “reliable revenues and high margins.”
Telecom chief executive Paul Reynolds flagged structural separation of its network business last month, blaming the government’s regulatory requirements for tilting the playing field.
The “critical component of the equation for Telecom will be whether and to what degree the government is willing to diminish its current high degree of regulatory oversight and price control,” Moody’s said in a report.
Still, Telecom’s “fixed line services, like those of most major incumbent operators, are experiencing a gradual decline as consumers increasingly opt for wireless usage and dispense with wire lines.”
Telecom is bringing more of its business units under control of central management as it seeks to rein in costs by some $622 million over a five-year period. Reynolds put forward a de-merger as a possible way to split its retail and network businesses to give shareholders exposure to both sectors.
The shares fell 1.1% to $1.88 in trading today, and have slumped 26% this year.
Moody’s said the New Zealand government is working to increase competition and bring more advanced technology to consumers at lower prices.
“To do so, it must break the incumbent’s vertical hold on key segments of infrastructure with the reward of participation in, or penalty of exclusion from, the government-subsidised UFB as inducement,” it said.
Businesswire.co.nz
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