Telecom 'worst case scenario'

Telecom is becoming "a worst-case scenario worldwide for the effect of government regulation on an incumbent telco", says an Australian analyst.

Laurent Horrut of global bank and brokers J.P. Morgan queried this week when the regulatory onslaught on Telecom was going to end.

He said European telcos had faced similar issues, including separation and local-loop unbundling - but the extent of regulation against Telecom has become an issue.

"Telecom would certainly be one of the most adversely impacted incumbent telcos we've seen," said Horrut.

"The Government seem to be going after any measures that, from their point of view, could improve the competitive environment.

"I understand the policy objectives, but if you take the list of things Telecom is faced with, there aren't any incumbent telcos facing such an extensive list."

Since early 2008, Telecom has been forced to operationally separate its main business units and ensure competitors can purchase network access on equal terms to its own retail business.

It is also dealing with the potential of regulation to fees it charges competitors to end calls on its mobile network and the possibility it will not be included in government plans to roll out high-speed fibre-base broadband networks.

"Typically in regulatory discussion between government and incumbent telcos there tends to be a give and take. I can see a lot of the take, I can't see a lot of the give here," said Horrut.

Guy Hallwright, telecoms analyst at Forsyth Barr, said the Australians, both analysts and investors, "do love to bag New Zealand".

Hallwright was in Australia earlier this week talking to institutional investors. "It's true there is a very negative feeling and what he's expressed is probably how the Aussies see it," he said.

"There's definitely some truth to it, and it's certainly how the Aussies are seeing New Zealand at the moment. They've just written Telecom off." But with the exception of the Government's fibre initiative, the majority of the negative regulatory changes are in the past, Hallwright said.

He added there was "a lot of water to flow under the bridge" in terms of the Government's billion-dollar broadband plan. "If Telecom is not involved in the urban areas, the Government will not want it going head-to-head rolling out fast DSL and competing with the new network.

"That would not be a good outcome for anyone. I think there are going to be deals done. I don't know what they are, but accommodations are going to have to be reached otherwise everyone is just going to lose money," Hallwright said. Telecom shares closed down 4c yesterday at $2.11.