Daily ShareChat: Telecom

By Jenny Ruth

Thursday 9th July 2009

A reduction in mobile-to-mobile termination rates should result in roughly equal payments for both Telecom and Vodaphone and so should not have a material impact on Telecom's earnings, says Guy Hallwright at Forsyth Barr.

While the two phone companies' termination rate undertakings start at about 14 cents and fall to 10 cents to 11 cents by 2014, the Commerce Commission is proposing 7.2 cents falling to 4.3 cents. It is also proposing text messaging termination costs starting at 0.95 cents and falling to 0.5 cents compared with Vodaphone's undertaking of 9.5 cents falling to 7 cents and Telecom's 3.5 cent proposed rate.

"Fixed to mobile is where the main impact will be felt as termination on mobile is much higher than the 1 cent charge to terminate on the fixed network," Hallwright says.

"Vodaphone has the most to lose, being a net beneficiary of high termination rates," he says.

Telecom could be impacted if the amount of the termination rate reduction passed through into fixed-to-mobile prices is high. His worst-case scenario would see Telecom's earnings hit by $10 million compared with his forecast for reported net profit for the year ended June 30 of $391 million.

Hallwright says Telecom's short-term profit outlook "remains fairly uninspiring."

BROKER CALL: Forsyth Barr rate Telecom (NZX: TEL ) as hold.

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