Sharechat Logo

Daily ShareChat: Telecom

By Jenny Ruth

Friday 19th November 2010

Text too small?
 Jenny Ruth

Telecom's market share will inevitably decline as regulation will endeavour to foster competition, says McDouall Stuart.

Mobile termination rates are to be regulated and the Commerce Commission is to set prices and other terms by year end and other regulatory issues are pending.

"Telecom's prospects hinge around its ability to protect market share in cellular and broadband, given the level of regulatory and competitive pressure in the next few years," the broker says.

"Inevitably, this will involve lower pricing and the company will have to take significant costs out just to maintain profitability. The risk is that the cost reduction impairs the ability to grow the revenue," it says.

While price competition should stimulate industry volume growth, revenue and margins are at risk.

The government's $1.5 billion ultra fast broadband and rural broadband national rollouts have the potential to reshape the industry. While Telecom is on the shortlist for UFB it isn't one one three priority bidders and its involvement will depend on the government accepting its proposed demerger of its retail and lines businesses.

"While cashflow valuation appears attractive, the risk attached to achieving the outcome are high and the shares should trade at a significant discount to valuation," McDouall Stuart says. It values the shares at $2.78.

Recommendation: Hold.

  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