Between the lines: Telecom's dilemma: to sell or not to sell

By RICHARD BRADDELL

What is Telecom going to do? A mere year ago, former chief executive Roderick Deane revealed that the company had been considering partial floats of some of its high-growth assets, among them Xtra and the Southern Cross cable.

The message has been repeated several times since, to the point where the question has become one of when, not if.

At least one exasperated sharemarket analyst thinks the company should shut up until it has something to tell.

During a roadshow in Britain and the United States two months ago, Telecom indicated an announcement on partial spin-offs would be made at the release of the third-quarter result next week. It has since signalled that nothing will happen that soon.

Hence last week's share price fall. But as the share price slipped, chief executive Theresa Gattung was throwing another possibility into the mix during an interview attended by a reporter from London's Financial Times.

Instead of just partial floats, high-growth enterprises such as Xtra, Southern Cross, the mobile businesses and AAPT could be bundled into a separate company and listed on the Nasdaq and Australian and New Zealand stock exchanges.

That was just an option. But what an option.

It would have the elegance of dividing Telecom into two distinct units - the new Telecom presumably being untrammelled by Kiwi share and foreign ownership restrictions and the old Telecom being an increasingly boring, although still contentious, network business that has prompted the telecommunications inquiry.

No one knows what the inquiry will bring. Perhaps not much, even if it goes as far as to recommend unbundling the local loop so that competitors can attach their own equipment to Telecom's copper without first going through a Telecom exchange.

If the inquiry does go that far, there is still the prospect that the Government's reforming zeal may have been blunted on other contentious measures such as ACC and industrial law revamps.

Whatever, as Dr Deane told the Business Herald last year, Telecom's interconnection prices will still have to fall at some point, otherwise it risks under-utilisation of its network as competitors use the headroom to build cheaper infrastructure.

That all points to a commodity pricing for the old network company.

But a partially floated, fresh, new-growth company may capture the imagination of investors, attract a takeover premium that currently eludes Telecom and help to get the over-all share price closer to the $11 or $12 a share that analysts think Telecom is worth.

It also raises a question of how happy the Government would be with having foreign ownership restrictions that apply to the parent lifted on a sizeable spin-off.

So far, its reluctance has been amply demonstrated with Air New Zealand and, now, Sealord.