PM's rebuke of Gattung hits shares

Theresa Gattung

Prime Minister Helen Clark has sharply rebuked Telecom chief Theresa Gattung for comments she made about regulation.

Gattung's comments - made in March to a group of financial analysts - were "inappropriate", Clark said.

The Prime Minister's remarks weighed on the Telecom share price which resumed its slide - ending the day 12c lower at $4.80. Gattung told Sydney-based analysts in March that Telecom didn't consider the unbundling of its local loop as a done deal.

The Prime Minister, speaking at a parliamentary press conference yesterday, expressed surprise at Gattung's comments.

"Anyone at Telecom who did not see unbundling coming must have had their head firmly stuck in the ground," she said.

Gattung also told analysts at the March briefing that the Government was "too smart to do anything dumb".

Clark said Gattung was mistaken if she didn't believe the Government would carry through on its regulatory threats.

"If that was her belief then she's given very bad advice to her shareholders and her board."

Gattung also made comments about how telcos around the world had used confusion as their chief marketing tool, but that customers were on to them and knew they weren't "being straight up".

Clark didn't address those comments directly, but gave the strongest indication yet that the Government is in favour of a full structural separation of Telecom.

"I've been quite clear that I believe that a more positive and proactive attitude towards competition, such as that taken by British Telecom when it voluntarily separated its company, would have been good for Kiwi shareholders."

A Telecom spokesman had described Gattung's comments as "colourful" but Clark said they were "inappropriate".

The company's share price was also hampered by media reports that Telecom's mobile phones business may be next under the Government's regulatory knife.

ABN Amro Craigs equities broker Matt Willis said the ongoing volatility in the company's shares - whilst a positive for speculators and brokers - was a good reflection of the uncertainty surrounding the competitive landscape the company would face in two to three years' time.

"The market is a function of consensus market forecasts.

"Telecom will probably be more volatile than ever as the market from day to day, week to week, assesses and reassesses how they're reacting to these changes."

While some brokers such as Forsyth Barr have downgraded their recommendation on the stock, others such as UBS, noting the increased yield as the company's share price has dived, have upgraded their recommendation - from "neutral" to "buy".

Forsyth Barr believed the market overreacted last week to the announcement and the volatile outlook for the share price would lead to short-term trading opportunities, but "we are more cautious generally to Telecom".

UBS analyst Simon Smiles said: "Any earnings impacts will not be felt for at least 18 months and, given overseas experiences, we believe that any earnings impacts will be significantly more muted than the share price movement implies."

UBS also noted that the new regulatory environment may result in the company reining in capital expenditure plans and ramping up dividend ratios.

"It's amazed me how divergent some of the analysts' viewpoints have been, and quite frankly you read both views and both make sense," said Willis.

He said much would hinge on the view taken by large offshore funds that dominate Telecom's share register.