Telecom faces tougher times

Telecom's share price reached a 13-month low on Wednesday, a symptom of increased Government regulation that was likely to destroy the company's market dominance, analysts said yesterday.

Shares hit $5.71, their lowest point since September 2004. They regained some momentum yesterday, rising 14c to close at $5.85.

"The regulator is becoming increasingly anti-Telecom in stance. Regulatory pressures are building on a bunch of fronts," said one analyst, who asked not to be named.

Last month, the Commerce Commission signalled it would give TelstraClear better broadband wholesale terms.

This ruling, which could come by year end, will likely pave the way for other internet service providers, some of which have already lowered their prices in expectation.

Telecom also risks regulation if it does not meet its self-imposed targets of 250,000 broadband customers by the end of the year, a third of which must be through wholesale. These numbers will be updated today when it reports its first-quarter results.

Richard Long, an analyst with Deutsche Bank, agreed investors were "concerned about the regulatory creep in the New Zealand market", which has been a benign environment up until now.

He said increased regulation was an enabler of more competition. But foreign investors might be deterred from buying Telecom shares due to a perception that the economy would slow and the dollar would continue to rise while interest rates kept creeping upward.

Telecom is expected to post a decline in first-quarter profit. A median estimate of nine analysts surveyed by Bloomberg was that net income would probably be $197 million in the three months to September 30.

They said the company's profit of $193 million from the previous year might be repeated, adding an additional $17 million, to comply with International Financial Reporting Standards.