Budget 2006: Unfazed investors back Telecom

Labour's threat to force the structural separation of Telecom was reiterated by Finance Minister Michael Cullen during his Budget speech.

He said a parliamentary committee overseeing the Government's telecommunications regulation, announced two weeks ago, was likely to consider the merits of full separation.

"Successive governments have been patient with Telecom. But national interest must prevail," he said.

"We cannot afford to be a barely middle-range performer in telecommunications as a result of allowing the incumbent to continue to play a long defensive game."

Two weeks ago, the Government announced forced accounting separation of Telecom as part of its regulatory package, which is designed to boost telecommunications competition and increase uptake of broadband internet services.

Telecom will also be forced to open its network to competitors and provide naked DSL services, or the provision of broadband without an accompanying phone line rental.

The package also made it clear the Government's intention to review whether further separation of Telecom's retail and network businesses would be necessary.

The telecommunications regulation was to have been the centrepiece of Labour's Budget, but its details were leaked to Telecom shortly after the plan was ratified by Cabinet.

Telecom threatened to release the details to comply with stock exchange disclosure rules, forcing the Government to make the announcement early.

Telecom shares were trading at $5.55 on May 3, the day of the announcement, but fell soon after with the company losing about $2 billion in market capitalisation since.

Investors were seemingly unfazed by Cullen's speech yesterday though, with Telecom shares rising 6c to close at $4.50.