Telecom shares plummet in frantic New York trading

Shares in Telecom, by far New Zealand's largest listed company, were smashed down 10 per cent in New York trading this morning, following the Government's surprise decision last night to open up its network to broadband rivals.

Telecom shares, bundled into ADRs (American Depositary Receipts), were down US$2.94 ($4.65) at US$26.15 in late US trading.

That was a 10 per cent fall - wiping $1.1 billion off the company's market capitalisation from before the announcement.

Telecom makes up about a quarter of the New Zealand stock exchange's value.

'It's getting hammered," said Alex Huff of JP Morgan in New York. "It's falling on heavy volumes."

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."

Telecom ADR price closed on US$26.39, down US$2.70, or 8.3 per cent.

National communications spokesman Maurice Williamson said Telecom's property rights were being denied by the Government's decision to force it to open up its network to competitors.

Mr Williamson told National Radio today that the move was unnecessary.

While everyone agreed faster broadband was good for the economy, "it's a matter of whether this move is the right move in terms of whether it will deliver", given the new technologies becoming available, he said.

"There are certain property rights that a company has, if it does the investing, if it builds the network," Mr Williamson said.

Mr Cunliffe said the property rights argument was being trotted out by defenders of "the establishment here".

"If that were a dominant argument, how is it that every OECD, every developed capitalist economy -- except Mexico and Switzerland, for its own particular reasons -- have done this long ago."

However, Mr Williamson said there was no correlation between those countries that had unbundled the local loop and the penetration of broadband.

"Telecom is not a monopoly. There is heaps and heaps of alternative broadband suppliers already out there.

With the range of new technologies here now and about to emerge made the Government's move unnecessary, he said.

The Government decision was announced after the local market had closed.

Frustrated by the cost of high speed internet access and the lack of consumer uptake of broadband, Telecommunications Minister David Cunliffe outlined the largest shake-up of the sector since privatisation.

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.

- NZPA