Telecom shares on brink of 13-year low

Telecom shares were hovering just above a 13-year low yesterday with analysts predicting they will remain volatile until a new regulatory framework is bedded down.

The shares dropped 6c yesterday and closed at $4.16 - a three-year low and just 3c off a historical low in 1993.

Telecom stock closed at $5.55 on May 4, the day before the Government's unbundling decision was leaked. The share price has steadily declined ever since, wiping $2.7 billion off the company's market value.

It would continue to fluctuate for the next 18 to 24 months, said ASB analyst David Boyce, with the lack of information about the likely wholesale price for unbundling the local loop being a major factor.

"The wholesale pricing will have a large bearing on how the competitors make money, and then it has to be figured out what pricing competitors will form in all services under the new regulatory model."

Telecom's dividend policy also had to be worked through in the next two years, Boyce said.

Citigroup has one of the more positive target valuations on Telecom - although it has dropped from $6.30 to $5.90 on the back of the unbundling announcement.''Our new target price assumes Telecom loses 28 per cent fixed-line market share by 2015," said analyst Kar-yue Yeo.

Citigroup rated a punt on Telecom as medium-risk because of the possibility of a new operator establishing a third mobile network and the prospect of more regulation in the fixed-line business, in particular, broadband.

Deutsche Bank Research analyst Richard Long said uncertainty would prevail until the framework of the regulatory review was in place.

Analysts' profit forecasts varied by $100 million, he noted.

Telecom listed on the New Zealand stock exchange in 1991 at $2 a share and over the next eight years rose to a high of $9.80 at the beginning of 1999. In 2000, due to the dotcom crash, the stock plunged from $9.50 a share to just below $5 a share.