Sharechat Logo

Telecom shares slide as rural broadband plan will slash profit

Tuesday 16th March 2010

Text too small?

Telecom said the New Zealand government’s plans to roll out high-speed broadband services to rural areas while overhauling how the phone company is compensated for uneconomic lines will slash earnings over the next three years.

The shares sank to a record low. The Cabinet has approved a $300 million plan to roll out high-speed broadband services to rural New Zealanders while amending the Telecommunications Service Obligation, under which other phone companies  pay a levy to Telecom in compensation for maintaining rural services including free local calling.

The company won’t receive additional compensation because the benefits of being nationwide supplier of the TSO will outweigh costs for the foreseeable future, Communications Minister Steven Joyce said in a statement today. The proposal approved by the Cabinet is little changed from the one outlined last September.

“Telecom NZ advised today that if these plans are enacted in their current form, Telecom’s EBITDA guidance for each of the 2011, 2012 and 2013 financial years will be adversely impacted by up to $56 million,” the company said in a brief two-paragraph statement to the NZX from spokesman Mark Watts.

Shares of Telecom fell 1.4% to $2.18 on the NZX today and have declined 18% in the past six months. Ongoing costs to comply with government regulations in a market where landline customers are migrating to mobile, where Telecom faces more rivalry, have helped toppled the company from its position as the largest company on the NZX 50.

Under the proposal signed off by the Cabinet, broadband services of at least 5Mbps will be extended to 97% of rural households, with the remainder getting at least 1Mbps, Communications Minister Steven Joyce said in a statement. Part of the initiative involves connecting 97% of rural schools, and therefore 99.7% of students living outside urban areas.

The cost will be met by a government grant of $48 million plus $252 million from the Telecommunications Development Levy, which replaces the TSO, at a rate of $42 million a year for six years.

Under the existing TSO, telecommunications companies pay a levy which is then paid to Telecom in compensation for maintaining rural services including free local calling. The government will put the project out for tender in April, with work to start in early 2011.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Telecom Corporation of New Zealand (TEL)
Telecom in drive to latch on to growing data usage with 4G mobile launch next month
Telecom lines up to buy 700MHz spectrum to extend reach of 4G network
Telecom backs setting copper prices until 2020, warns against getting too far away from input cost
Telecom puts $60M price tag on new Auckland data centre, Hawkins, AECOM win build
Telecom ends jobs purge, looks for ‘more sophisticated’ ways to save money
Telecom FY earnings fall to bottom of guidance range, sees unchanged dividend in 2014
Telecom takes spat with Vodafone to regulator after dropping court action
Telecom unbundling key to regulator's copper conundrum
Telecom lures customers to faster services in EPL deal