Telecom jumps at hint of non-regulation

Telecom presented a positive face to shareholders at its annual meeting yesterday but admitted to being unhappy with its share price.

Telecom chairman Rod Deane said the company was going through a transitional period and was confident of completing a takeover of Australian telco AAPT, of which it owns 80 per cent.

Its share price has plummeted this year, tracking the falling dollar and sharemarket, from a high of $9.81 in April. It closed yesterday up 5c at $5.40.

Dr Deane said the ministerial telecommunications inquiry had a big impact on the share price.

But he held out hope that the Government would take the softer regulatory line pointed to by Finance Minister Michael Cullen.

After the inquiry's final report was released last week, Dr Cullen said the sharemarket seemed to be over-reacting to its recommendations of industry-specific regulation and an independent regulator.

He suggested the markets would be better guided by the electricity reforms, which follow a self-regulating model overseen by the Commerce Commission.

"Perhaps that was an indicator that the Government may not feel the need to move towards a separate regulator but might prefer to utilise the Commerce Commission," Dr Deane said.

The falling share price could also be explained by the worldwide re-rating of telecommunications stocks, "as people have become more concerned about their ability to adapt to the future and change, and some concerns about people overseas paying too much for spectrum for mobile communications.

"We're optimistic that perhaps we won't have to pay quite as much in New Zealand.

"We hope that some of the growth initiatives that we have underway will underpin a recovery in due course."

One shareholder, who said many long-term investors had come to rely on the Telecom dividend, suggested that after 10 years the company should be able to finance itself without wading into shareholders' money.

In August, Telecom said it would cut its dividend payouts to half of its net earnings, from a previous payout roughly equal to 100 per cent.

"The essential dilemma we faced was we needed to grow the company ... but we faced a very sharp decline in prices for many of our products," Dr Deane said.

"That meant that if we were to continue to be a strong, viable and growing company we would need to get into a number of major new areas in order to achieve growth.

"That needed to be financed - initially we undertook more debt ... but then as that expansion continued we came to the judgment that we needed to invest more of our annual earnings back in the business.

"The idea was that we would be able to grow our earnings and our share price over ... the next few years, and so in time we would very much like to restore the growth of our dividends.

"That is our objective but we are in the middle of a major transformation."

Chief executive Theresa Gattung said traditional business was providing a decreasing slice of Telecom's revenue.

In the year ended June, national call minutes increased about 5 per cent while the average price fell 20 per cent.

"The resulting decline in revenue was offset largely by a 26 per cent increase in calls to our cellular network, and an 8 per cent increase in national 0800 revenues," Ms Gattung said.

Connections to the internet accounted for 60 per cent of all local residential calling on the Telecom network.

The $2.3 billion Southern Cross Cable, of which Telecom is a 50 per cent partner, will go live in a month, increasing internet capacity.

Herald staff / NZPA