Cullen panicking over Telecom

By RICHARD BRADDELL

It took but one short press statement, and what seemed to be little more than a blind funk, for Finance Minister Michael Cullen to put a ring around the scope of the telecommunications inquiry.

Whereas Communications Minister Paul Swain has refused to prejudge its proposals, a statement from Dr Cullen 10 days ago indicated one of its core recommendations - that industry oversight be managed under an independent electronic communications commissioner - would not happen.

He even seemed to imply that there would be no industry-specific regulation, leaving open the question of whether there was any point to the inquiry after all.

"Mr Swain has always been sceptical about the value of industry-specific regulation, rather preferring to look at using the Commerce Commission as a vehicle for regulatory changes which may be approved," Dr Cullen said.

It is worth noting that the statement - dictated from Napier to his press secretary two days after the inquiry's recommendations came out - was made after consulting Mr Swain.

It is also noteworthy that Mr Swain, when in Opposition, at times reflected Dr Cullen's newfound concern that regulatory reform not unduly rock Telecom's share price.

But these are early days. And while Dr Cullen seems to have panicked over Telecom's continuing weakness, his closing suggestion that markets should take guidance on likely outcomes from electricity industry reforms does little to suggest that there will be no industry-specific regulation at all in telecommunications.

Policy is still subject to negotiation, not just with the telcos, but between Labour and the Alliance. And Alliance telecommunications spokeswoman Laila Harre says it has always been the party's strongly held position that there should be a separate regulator, although she accepts there will always be issues about what should be regulated.

The inquiry has already ruled out, for now at least, local loop unbundling, which the Alliance supports, although Ms Harre notes that is always a possibility in the future.

She told an Alliance conference last weekend that it would need to be very active in the development of the Government's response to the inquiry.

"Having come this far, we shouldn't get ourselves into a situation where we wait another 10 years for any really substantial action," she told the Business Herald.

And if Dr Cullen is keen to constrain the outcomes, the fact is that it took much longer than expected for the Government to announce the electricity reforms because of the intensive negotiation between the two parties to reach an outcome that satisfied both.

Nevertheless, Dr Cullen's remarks did not pass unnoticed in the industry. While Telecom was pleased that the Government was providing the sharemarket with clarification on possible regulatory changes, there was surprise from other industry quarters.

Telstra Saturn chief executive Jack Matthews thought Dr Cullen's remarks premature given the consultation process yet to take place, although he thought they were intended to downplay potential for heavy-handed regulation rather than being aimed at supporting Telecom's price.

"We would share some of the concerns about regulatory creep ourselves and the only reason that we strongly support the independent regulator is because historically the Commerce Commission hasn't given us a lot of comfort that they've got the resourcing and capability to really move quickly enough in the kind of environment we move in."

Nevertheless, on the question of Telecom's share price, Mr Matthews accepted that it had been argued in the past that the country would suffer if Telecom faced an unfavourable regulatory regime.

"If Telecom is that important to the national security of New Zealand, they ought to just nationalise it again. It's a completely specious argument to suggest that the Government should start involving itself in policy on the basis of share price. I don't believe that was what was going on ... I'm not suggesting Cullen was doing that," Mr Matthews said.

But if Dr Cullen's intention was to support Telecom's price, there is sharp division among analysts on the impact the inquiry has been having anyway. While some see its impact as significant, AMP Henderson's New Zealand equities manager, Stephen Walker, sums up the counter-argument in seeing the inquiry as being but one factor among many.

Telecom has typically been viewed by international investors as a proxy for New Zealand and Mr Walker said that if the kiwi dollar fell, its price often went with it.

Telecom is out of favour in part because of the huge cash demands of its Australian expansion. And growth investors are also staying away until they are sure the promised returns from Australia will eventuate.

As Mr Walker wryly observed, at current prices, Telecom is again an income stock.