Investment at risk without higher returns for firms

Statistics NZ data shows the sector earned an average 2 per cent return on its assets in the five years to 2013, with high fixed costs and a small and low-income customer base.
Statistics NZ data shows the sector earned an average 2 per cent return on its assets in the five years to 2013, with high fixed costs and a small and low-income customer base.

Investment in the telecommunications sector has hit $1.7 billion annually but could shrink if returns don't rise, warns Spark chief executive Simon Moutter.

The Telecommunication Forum yesterday released a report on the local sector which found it was investing at one of the highest rates in the OECD.

Forum chief executive Geoff Thorn said the level of investment was huge for the size of New Zealand and meant the country was now "ahead of the game", with the fastest uptake of broadband in the world and among the fastest 4G mobile download speeds globally.

The report said the sector faced opportunities and challenges from rapid growth in data consumption, fuelled by fast-growing use of on-demand video services.

Consumers' expectations have risen, which has required more investment in infrastructure, but at the same time they want to pay less for it.

Statistics NZ data shows the sector earned an average 2 per cent return on its assets in the five years to 2013, with high fixed costs and a small and low-income customer base.

The lower revenues and earnings pose important questions about where the cash for ongoing investment will come from, the report says.

Moutter said one of the report's salutary reminders was the "bits on return to the industry", with the $5 billion earned relatively unchanged in the past decade.

"It's not a rising revenue. That's supporting an investment level of 30 per cent of revenue which is stunningly high," Moutter said. "At some point, we need to [see] a stronger revenue performance to validate it, otherwise the inevitable will happen and the level of investment will shrink."

The Ministry for Business, Innovation and Employment is reviewing the legislation governing the sector, which looks set to align regulated prices for fibre and copper-based services, using a similar framework to the electricity sector.

- BusinessDesk

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