Telecom heads above bad bunch

By PETER GRIFFIN telecoms writer

Telecom has emerged in new research as among the best of a bad bunch on the global telecoms scene but the figures paint a grim picture for the sector overall.

Telecom's total return for the year to June 30 was minus 6.9 per cent, a figure likely to make investors cringe, but one that puts it ahead of Telstra (minus 13.5 per cent), Hutchison Australia (minus 15.5 per cent) and telecom giants including BT, Deutsche Telekom and AT&T.

Total return measures stock price movements over a period combined with the value of dividends paid.

London-based investor relations consultancy IR Group put Telecom number one on a list of 18 of the largest telcos after examining its performance over the past year.

But Sydney-based telecoms analyst Paul Budde said Telecom was being out-performed, particularly by Asian telcos.

"There are many carriers in Asia and Europe that have grown significantly over the last couple of years. If you include them it twists the picture."

But Budde said Telecom and Telstra had to be commended for some "sound and realistic financial policies".



"They've made mistakes, but not to the extent that we've seen in Europe and the US."

European and US operators had paid the price for over-extending themselves.

Jeremy Simpson, a telecoms analyst at Forsyth Barr, said Telecom's virtual monopoly had softened the impact of a malaise in the sector.

"A lot of those operators don't have the domestic dominance of a Telecom or Telstra, and they've had to spend a lot more on capital expenditure and spectrum, which has hit their balance sheets."

Highly profitable Telstra had a "golden" balance sheet and also a market dominance similar to Telecom.

Its Government ownership meant it had not joined the spending spree of the tech boom, aiding it in the long run, said Simpson.

Other big telcos are feeling the heat after the boom of the 90s.

Vodafone had a total return of minus 42.07 per cent.

Its share price has halved in the past six months.

Japanese mobile operator NTT DoCoMo's total return was minus 31.97 per cent and France Telecom's was minus 74.49 per cent.

WorldCom was the group drop-out, with a total return of minus 94 per cent.

Budde said bankruptcy was now the likely outcome for WorldCom.

In Australia, the company had been growing "quietly" at a rate of around 50 per cent per year, with estimated revenue of around A$300 million ($344 million) excluding OzEmail, its popular internet service provider.

He ranked WorldCom fifth in the Australian telecoms market behind Telstra, Optus, Telecom-owned AAPT and Primus.

Budde said the fall of giants such as WorldCom and Global Crossing served to give incumbent telcos more power and dealt a blow to competition.

"We now have fewer large competitors with revenue over A$100 million than we had in 1996.

This number has dropped from 11 to 6, and further consolidation takes place as we speak."