Peter Nowak: Problem at Telecom is its bad attitude

Here's a scary thought for Telecom shareholders - while the company's stock is wallowing near its 52-week low, some analysts say the effects of looming regulation have yet to be fully factored in. In other words, it's looking like a good time to sell because the stock is likely to test new depths.

It's been a great ride under the company's current leadership. Not only has Telecom's bottom-line profit climbed steadily higher over the past six years, so has its dividend yield. There's no question it has been a truly great stock to own.

But six years isn't that long in the grand scheme of things, and those short-term gains look like they're going to come at the expense of long-term health because Telecom is hurtling to an unnecessary regulatory fate.

At the very least, this means the company needs a new, less arrogant attitude. And if that's not possible, the market may start crying out for new management.

Telecom's legal challenge of the Commerce Commission's proposal to regulate wholesale broadband terms, lodged on Friday, is the latest example of an antagonistic attitude that is going to hurt the company in the long run.

Telecom says the proposed pricing principle on which the commission has based broadband wholesale regulation is in error, and it wants a judicial review.

Whether the claim has any merit is beside the point - the commission has been researching and consulting on this regulation for more than a year. In the meantime, the country has continued to languish near the bottom of OECD broadband rankings with just about everyone agreed that New Zealand telecommunications is a competitive wasteland.

Telecom's legal challenge is another attempt to stall the inevitable, which is the opening of the broadband market to competitors. At this point, where the mood really is shifting against the company, it's a move that will only further antagonise an increasingly unfriendly commission and Government.

What's worse is the legal action comes hot on the heels of another recent display of Telecom attitude - its backtracking on wholesale goals. In releasing its first-quarter results recently, Telecom took the opportunity to clarify its position on its self-imposed goal, that it never promised one third of its high-speed internet customers by the end of 2005 would be signed up through third-party wholesalers. Instead, the company argued its position has always been that one third of customer growth would come through the wholesale channel.

Not surprisingly, the statement elicited astonishment all round. Main rival TelstraClear pointed out that Telecom had close to a year to clarify its position, yet chose to do so only when it was apparent it would not reach that one-third total goal.

The commission, which has been monitoring the wholesale numbers, last week released correspondence and numbers that essentially said, "nice try Telecom, but no cigar". Communications Minister David Cunliffe also disagreed and said as far as the Government was concerned, it was the total that counted.

And that was only the latest in a long line of backtrackings and excuses. The company used to blame New Zealand's poor uptake of high-speed internet on the country's difficult geography. When nobody bought that one, Telecom switched gears to trumpet the fact that high-speed internet is available to virtually 100 per cent of the country.

Next, the company tried to blame the poor uptake on the existence of free local calling, which it said encourages people to stay on dial-up. Nobody bought that one either - the OECD secretariat was even moved to deliver the company a rare public spanking, declaring the claim hogwash.

On the wholesale front, Telecom has for the better part of the year been blaming TelstraClear - which has chosen not to play ball under existing terms - for its woeful performance.

That was an easy one to shoot down, as TelstraClear's chief executive, Allan Freeth, did last week, saying: "It's a bit cute to say we've agreed to do this so we'll put some crumbs out there, but they're old and stale so it's the bird's fault because it won't eat them".

Critics of the company have always cited attitude as Telecom's biggest problem. Just once, they say, it would be nice to have the company answer poor performance with, "sorry, it's our fault, we'll try to do better". Had that been its attitude over the past six years, maybe regulators wouldn't be fed up and the dooming hand of regulation wouldn't be hovering over its head.

It may now be too late for a simple change of attitude to save the company - as with any guillotine, heads will have to roll.