Investors slam phone down on Telecom over its choice of overseas investments

Friday 20th July 2001

By Rob Hosking

Telecom's share-price woes may not be solely due to worldwide concern about telecommunications stocks in general. There are growing concerns about the company's investments, in particular its Australian strategy.

It now appeared Telecom had paid too high a price for Australian carrier AAPT, AMP Henderson's senior equity portfolio manager Craig Brown said.

Telecom has also bought further into INL and Sky TV, and this month rolled out its CDMA mobile network.

"The whole telecommunications sector is under pressure, so the fall in price is some reflection of that," Mr Brown said.

Telecom's share price dipped below $5 this week for the first time, and has fallen from around $10 since the start of the "tech wreck" more than a year ago.

Some of this was reflective of investors' nervousness about over-leveraged telcos around the globe. While during most of the 1990s Telecom's share price movements were considerably influenced by investors' views of the New Zealand market, since the company moved offshore the price movements have been more closely tied to market sentiment about the telecommunications sector as a whole.

However, there were also specific concerns about Telecom, mostly related to the high acquisition and capital spending over the past couple of years.

"Are we going to see a return on that? I still have some concern about their earnings going forward," Mr Brown said.

It was still hard to see how Telecom was going to get a return on the capital it had put into AAPT. And, in hindsight, the $A1.8 billion it paid had been too high, he said.

There are also wider concerns about the state of the Australian telecommunications sector. The field began to look desperately crowded earlier this year but the collapse of the Packer- and Murdoch-backed One.Tel last month began what some analysts believe could be a winnowing out of providers.

Telecom has since canned a CDMA mobile service roll-out of its AAPT operation and linked up with Hong Kong- owned provider Hutchison Australia. Telecom put $A250 million into the new firm, called Hutchison 3G, which will compete with Telstra and Cable & Wireless Optus in the third-generation mobile services market.

Telecom chief executive Theresa Gattung described this as a relatively cheap way of building another mobile network across the Tasman.

She has also expressed the company's view that the current negative sentiment about the Australian telecommunications market would soon bottom out once the fall- out from the One.Tel collapse had been cleared away from investors' minds.

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