Government not anti-Telecom

Wednesday 17th March 2010

New Zealand's government isn't trying to undermine Telecom Corp. in measures such as bolstering rural broadband services, said Communications Minister Steven Joyce.

Telecom stock sank 1.4% to $2.14 on the NZX today, the second day in a row it has fallen to an all-time low.

The government yesterday announced plans to rollout broadband services to rural areas while amending the way Telecom is compensated for maintaining uneconomic lines.

The phone company said the changes will slash earnings by $168 million over three years. Joyce said his relationship with Telecom is "on the whole good.

There are things they would prefer we didn't do - this is an example."

The government "isn't trying to head down an anti-Telecom path," he said. "We're just trying to get the best broadband."

Yesterday's announcements reiterated proposals announced last year and "the market had fairly fully factored in this change when it was first announced," Joyce said, adding that the weakening share price is a reaction to other, more recent events.

Telecom's year has started badly, with repeated outages on its new XT network, spurring some customers to switch providers and damaging its brand.

The company has already been forced into an operational split as part of efforts to bolster competition, and the costs of compliance have contributed to an erosion of earnings.

Like incumbent phone companies around the world, it has also had to adjust to the consumer trend away from fixed-line phones, Telecom's core business, to mobile, where the carrier competes with Vodafone and 2degrees.

Shares of Telecom are rated ‘hold,' based on the consensus of 13 recommendations compiled by Reuters.

Three analysts have an ‘underperform' rating.Under the government's $300 million rural broadband plan, it will contribute $48 million, with the remaining $252 million from the Telecommunications Development Levy, which replaces the Telecommunications Service Obligations, at a rate of $42 million a year for six years.

Farmers have already given the government two cheers for its efforts to improve rural phone services, which are a key business tool for farms that bank and trade online.

"This is progress in the right direction, but it's just the first step," said Federated Farmers chief executive Conor English.

"Federated Farmers is not talking baby steps but wants radical change. It's the ability to harness things like 3D and other leading edge technologies and this demands ultra fast speeds."

English, the younger brother of Finance Minister Bill English, urged the government to increase the package to $500 million.

Businesswire.co.nz

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