Telecom overreacts to inquiry as utilities relax about their's

By Peter V O'Brien

Friday 13th October 2000

Developments in the Fletcher Challenge stocks this week displaced earlier news about reports affecting the telecommunications and electricity industries.

Quick changes in news emphasis happen regularly and are part of the reason some people involved in investment tend to be trigger-happy, reacting impulsively to anything new.

The FCL developments may have pushed the utility industries' reports down the list of news items but they still exist and have potential to affect listed companies, depending on what the government does with recommendations.

The last point is worth remembering when the trigger-happy push share prices up or down on the basis of an inquiry committee's report.

No government is bound to accept all or any recommendations from a committee. New Zealand's political and economic history has many - possibly hundreds of - examples of learned tomes summarising exhaustive investigations into all aspects of the nation's life and making recommendations for action and new policy.

It is doubtful whether any government ever accepted all the recommendations of any report, unless the inquiry was focused on one or two specific questions.

We have already seen that in the reaction of Finance Minister Michael Cullen to a recommendation in the telecommunications inquiry report that a specialist regulator be appointed to oversee the industry.

Dr Cullen's comments after Telecom's share price tumbled suggested the government, through its appropriate ministers, preferred to have the Commerce Commission take the overseer's role. It is an open question whether Dr Cullen should have said anything in the context of a share price fall but the fact is he made a statement.

Telecom's share price slumped this year and at one point hit a five-year low. The figures in the table show the slide. The percentage change column is based on the movement from June 30, because that was the date NBR took for share prices in a July 7 examination of market reaction to draft reports on the telecommunications and electricity industries.

The final reports are with the government. They had little effect on the electricity companies' share prices but, as noted, affected Telecom until Dr Cullen's intervention.

Telecom has several beefs with the telecommunications report and was quick to take the offensive on matters such as savings to consumers and the economy if the industry was regulated and the operation of the Kiwi share.

Suggestions that regulation would benefit consumers to the extent of $328 million a year were obviously open to debate, as were matters related to the Kiwi share.

Telecom's reaction to proposals about the Kiwi share went further than disagreement. A statement to the Stock Exchange has Telecom's general manager government and industry relations (which sounds like a fancy name for one of the company's many PR practitioners) Bruce Parkes saying the organisation would resist vigorously any attempts to legislate a new Kiwi share arrangement.

Mr Parkes said the Kiwi share was a contract between Telecom and the government. The company had "stuck by" the contract over the past 10 years and gone far beyond its basic requirements.

Fair enough but Mr Parkes went further, some would say too far. The comment in the Stock Exchange statement was put as a quote from him.

"But we will not accept a proposal for suddenly making the Kiwi share an open-ended obligation on Telecom, with potential for the costs to mount steadily over time."

Mr Parkes can be assumed to be speaking for the Telecom board and management.

His statement that the company "will not accept," while talking about having discussions with the government, may have been unintentionally arrogant but it left the impression of arrogance.

What will Telecom do if the government legislates to change the Kiwi share in a manner the company dislikes? Take to the streets? Fortify the barricades? Storm Parliament?

Telecom has played hardball many times in the business arena. Nothing wrong with that but when the company uses the expression "we will not accept" it goes too far and suggests it is superior to governments, other organisations and individuals.

Reaction to the report on the electricity industry, as expressed in share price movements, was more relaxed.

Prices of three companies increased between the release of the draft report and the final, and decreases for the other two were not particularly significant in the context of the report.

It seems people in the industry are reasonably relaxed about a revamped electricity overseer.

Consumers would like the idea of a cap on fixed line charges. Share price movements can now be based on profitability.

Utility companies' share prices (c)

Company	Price 9/10/00	Price 30/6/00	Price 30/12/99	% change 30/6/00	2000 high to 9/10/00	2000 low
Contact	258	285	335	-9.5	340	233
Horizon	800	725	770	+10.3	820	600
TransAlta	275	250	250	+10.0	300	200
Trustpower	300	305	410	-1.6	508	265
United	715	611	590	+17.0	720	560
Telecom	555	745	900	-25.5	981	537

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