Regulatory risks "notably high" for Telecom and Telstra, says Fitch

Friday 18th December 2009

Dec. 18 (BusinessWire) - The New Zealand government's ultra-fast broadband policy has raised the significance of regulatory risks for Telecom New Zealand Ltd, says the international credit rating agency, Fitch, in an update report on Asia-Pacific telcos today.

Telecom scored 6.0 out of a possible 7.0 on Fitch's regulatory risk scorecard, 0.5 points belowTelstra, the Australian incumbent telco, which like its New Zealand counterpart was judged to be exposed to rising "political and social policy risks".

The primary difference between the New Zealand and Australian ratings is Fitch's view that Telstra is more exposed to a government or regulator's "propensity to effect lower tariffs".

Regulatory uncertainty had abated since structural separation was forced on Telecom in 2006.

"However, the government's model for fiber investment, announced in September, means that regulatory risk has increased, which Fitch believes will affect the incumbent to a greater degree, and consequently the difference in scores."

In particular, Telecom's apparent freeze-out from participation in the government's $1.5 billion ultra-fast broadband initiative "represents a potential step changve in the government's reform process, with structural separation of Telecom NZ a real possibility".

"Telecom remains committed to its own national fibre network, thereby raising the distinct possibility of a duplicate infrastructure and the company competing against a government-funded network."

Fitch says the company's choices in the face of rising regulatory risk during 2010 are: structural separation to allow participation in the broadband initiative, participation as a minority partner, or not to participate at all.

"Irrespective of the path, the evolving regulatory regime is likely to have a negative effect on Telecom's business and financial profile," Fitch concludes.

Telecom shares were up 2.1% at $2.44 in trading on the NZX this afternoon, and are down 10% over the last three months.

The company is seeking what it says are "small changes" in its commitments on structural separation from Communications Minister Stephen Joyce.

The proposals seek to ensure Telecom's operational separation investment programme can incorporate ultra-fast broadband services, processes and capabilities, once these are known.

Businesswire.co.nz

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