KEY POINTS:
Telecom may escape being carved in two when a parliamentary committee reports late next week, saving the company's share price from a further battering.
The committee is considering a proposed law that would force Telecom, the country's biggest listed company, to open up its local networks to rivals
to increase competition and speed up the introduction of fast internet services.
But committee chairman Shane Jones said on Friday there was nothing in the bill to cause Telecom investors too much concern.
"The committee is very, very aware of the importance of maintaining pro-investment sentiment and pro-investment frameworks," he said in a telephone interview.
"For those people who have been angst-ridden and worked themselves into a lather over ownership splits, I think they should just wait and see."
There has been speculation the bill would force Telecom to split its wholesale arm into a separate company, similar to the moves made by Britain's BT Group Plc. The government had said it was keeping that measure in reserve.
In June, Telecom split its wholesale and retail divisions into separate operating units, a move designed to stave off a harsher split being included in the bill. The company declined to comment on the committee's forthcoming report.
Mr Jones said the aim of the new law would be to promote competition, but the committee at all times considered the importance of the capital markets.
Analysts' have differed on whether the committee would recommend a split, but agreed such a move would have dire consequences for the company.
"In stock price terms, we believe this could be a seismic event with in our view the current price not reflecting separation risks," said Andrew White of Goldman Sachs JBWere.
The company's market value would fall to between $4.1 billion and $6 billion from its present $8.7 billion, he said, with its shares worth between $2.80 and $4.20.
The company, New Zealand's largest listed concern with a market capitalisation of around $9.1 billion, was trading at $4.54 on Friday, down 0.7 per cent on the day.
Steve Hodgson, an analyst with Macquarie Equities, said full separation was unlikely, but could not be ruled out.
"Structural separation would be a radical move that would have negative consequences for Telecom and very significant consequences for the industry as well as NZ consumers," he said.
The Government first announced in May a sweeping package of market reforms based around so-called local loop unbundling -- telecommunications industry jargon for opening up local networks between exchanges and consumers to Telecom's competitors.
The committee's report next week will outline the recommended shape of the law, which will be debated and finalised by parliament. It is expected to be passed in early 2007.
The May decision wiped more than $2 billion from Telecom's value, sending its shares to a 13-year low of $3.93. It has fluctuated widely since then, which analysts have put down to the lack of certainty about the future regulatory environment.
Telecom dominates the New Zealand local calling and internet markets, and earns the bulk of its $5.8 billion annual revenue from providing services over its copper phone network.
It competes against local arms of Australia's Telstra Corp and British mobile giant Vodafone Group .
Telecom also has other question marks hanging over the regulatory environment, with the competition watchdog also investigating the state of the mobile phone market, with a preliminary report due on December 15.
- REUTERS