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Telecom's participation in broadband rollout positive for company

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.

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Comments from our readers

On 6 August 2010 at 1:04 am Jona said:
Telecom has fought deregulation long and hard, and is currently being challenged for its part in a cartel running high termination charges for cell phone calls. So why is Telecom being allowed a suck of the sav when we all know they have a monopolistic agenda driven by profit that has retarded progress in fast broadband development. So now they are presenting a nice face to the Government to score a share of taxpayer’s money. The same taxpayers who have been overcharged and ripped off by this company who have little or no sense of good corporate governance? I implore the politicians to think again before making the mistake of enrolling Telecom as a major partner for change. Personally I will cheer the day Telecom folds its tent and buggers off. Maybe then some politician with forward thinking and an eye on the past will organize the creation of new government telecom entity to administer fiber networks in NZ. I couldn’t think of a better investment for some of those super funds. As much as the private sector hate to hear this, they know there is a truth to the notion that not all businesses are best run by the private sector, especially the former single operator, Telecom, who found their business headed up a dead end because they have to return a shareholder profit that eats into redevelopment capital to gear their operation for a changed market.
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