Daily ShareChat: Telecom

By Jenny Ruth

Sunday 19th December 2010

Crown Fibre Holdings' (CFH) announcement Telecom is one of three parties selected for priority negotiations on the roll-out of the government's $1.5 billion ultra fast broadband (UFB) plan makes it less likely Telecom will end up competing with the government, says Nachiket Moghe, an analyst at Aegis Equities Research.

Until that announcement, Moghe had rated Telecom's chances in participating in the roll-out at about 50:50.

"Negotiations between the company and CFH will continue well into 2011," he says.

While the announcement is a slight positive for Telecom, "the situation is still quite fluid and there is a long way to go."

Moghe had previously questioned whether the prices already set for UFB services could produce sufficient returns to justify the cost of Telecom participating.

"It seems the government is intent on aggressively pricing the product to ensure a high take up rate," he said in a previous note.

The government has announced wholesale household prices will start at $40 or less per month for an entry level product and $60 or less per month for the 100 megabytes per second product.

"If Telecom partners with the government, its copper assets will be practically redundant. It will have to invest in fibre alongside the government and the cost of that will depend on the extent of its coverage." Telecom will also incur costs in splitting into two companies, Moghe says.

Recommendation: Hold.

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