Telecom overvaluation 'means little'

Telecommunications Commissioner Ross Patterson. Photo / Mark Mitchell

A Commerce Commission report claiming Telecom has overvalued assets sounds dramatic but means very little, say analysts.

Yesterday, the industry watchdog released its review of Telecom's regulatory financial reporting for the year ended June 30, 2010, and deemed the statements unreliable for "regulatory purposes".

"Telecom has not satisfied the commission [that its financial statements were reasonable]. As a consequence, a number of costs, including the cost of providing rural phones - for which Telecom has reported a loss - are likely to be substantially overstated," said Telecommunications Commissioner Ross Patterson.

"From a current-cost perspective [an estimation of what it would cost to replace at today's market values] we would say the [network] assets are overvalued."

However, Patterson said the report had no consequences for Telecom's regulated products or the wholesale prices offered to retailers.

Telecom is required to present its accounts to the commission under 2006 amendments to the Telecommunications Act.

However, Forsyth Barr's Guy Hallwright said the statements sent to the commission were not linked to Telecom's public financial results and were prepared using a different methodology.

Moreover, he said the review loses meaning as the Government prepares to roll out its ultra-fast broadband scheme. Goldman Sachs' Tristan Joll agreed that the commission's announcement would have no consequences for Telecom.

The company's shares closed down 1.39 per cent at $2.125.