Shares in Telecom plunged 10.6 per cent when the sharemarket opened today, following last night's surprise announcement by the Government to open Telecom's phone network to broadband rivals.
Telecom shares plummeted 56 cents to $4.99 from yesterday's $5.55 close, wiping $1.1 billion from the phone giant's market capitalistion.
The sharemarket plunged 2.4 per cent with the benchmark NZSX-50 top 50 share index down 91.7 points to 3674.9.
Telecom makes up 21 of the index and no other sharemarket in the developed world is so dominated by one stock.
Telecom's shares dropped 10c in late trading yesterday as news that Telecommunications Minister David Cunliffe would make an announcement on the issue filtered to the market.
The Government hastily brought forward the announcement, originally scheduled for the May 18 budget after it discovered Cabinet papers on the decision had been leaked to Telecom.
Telecom shares fell 7 per cent in Australia and 9.3 per cent in overnight trading in New York.
Volume was very heavy with 20 million Telecom shares worth just under $100 million traded in the first minutes. That is equivalent to the total market's trading on a normal day.
Alex Huff of JP Morgan in New York said Telecom got hammered on heavy volume in US trading.
Mr Huff, who specialises in ADR trading, said trading in Telecom shares was about 15 times normal.
Big institutional names were among the sellers.
He said Telecom was not usually on people's radar screens but last night it was amongst the most heavily traded ADR on the New York Stock Exchange.
"We've had some good sized prints (trades) go through," Mr Huff said.
Selling had been prompted by news that the Government was going to force Telecom to open up its lines to more competition "which obviously nobody likes to have happen to them".
The Government today launched an inquiry into how the leak occurred.
Brook Asset Management executive chairman Simon Botherway said the Government's decision looked to be significant for both Telecom and the sharemarket longer-term.
He said investors needed more detail on the announcement but it looked very negative for Telecom.
While the Government had clearly signalled it was considering tighter regulation, the announcement appeared to be the worst of a range of scenarios for Telecom, he said.
"It was further than people had anticipated," he said.
"People will act on the basis that what the Government has said will transpire."
Telecom's share price fall would have a knock-on effect and investment returns for fund managers would be hit this quarter, he said.
The government's action would raise property right issues for foreign investments.
"It's an issue in respect to a broader spectrum of investments," Mr Botherway said.
Telecom may have found its nadir after this morning's sudden jolt.
"Telecom is trading in line with where it was trading in the (New York) ADR market overnight, settling around where it offshore markets had suggested it would settle," First NZ Capital's Malcolm Davie said.
"It seems to be settling around the $5 level."
Brian Stewart of local broker Forsyth Barr Frater Williams said it was hard to say whether Telecom would stabilise at current levels.
"It's been driven by the offshore guys' view on the change in the regulatory environment.
"We've had 10 years of benign environment and this is probably a sea-change for most of them."
He said it could have a knock-on effect on other stocks affected by the regulatory environment.
Auckland Airport's monopoly could come under threat. Its shares were down 4c to $1.99 today.
No 2 stock Contact Energy, which is could be affected by electricity market regulation, was down 12c to $7.85.
Frustrated by the cost of high speed internet access and the lack of consumer uptake of broadband, Mr Cunliffe last night outlined the largest shake-up of the sector since privatisation in 1990.
At the heart of the package is legislation requiring the unbundling of the local loop and sub-loop copper wire lines between telephone exchanges and homes and businesses.
Telecom's competitors can as a result put their equipment into Telecom's exchange and directly run services into homes and businesses.
The news was greeted with glee by Telecom's rivals and critics, and dismay by Telecom.
Macquarie Equities head of research Steve Hodgson said while local loop unbundling was in itself not a surprise, the devil would be in the detail, with the Government indicating further regulatory measures were on the cards.
Telecom described the decision as a "lost opportunity for New Zealand" saying it would deter telcos from investing in new technology.
Independent Australian telco analyst Paul Budde, a stern critic of Telecom's network monopoly called it "fantastic news"
"But the sting is in the tail about how quickly and successfully it can be implemented."
He said it was crucial that the Commerce Commission be given new powers to oversee the unbundling.
Mr Budde said Government regulation of New Zealand telcos had been tardy.
"Nevertheless it is a great step forward and sets the scene for bigger and better regulations than we have seen in the past."
The Government had planned to announce the regulation as part of the budget on May 18 but hastily brought forward the announcement after discovering Telecom had obtained leaked Cabinet documents.