Telecom plunge mirrors overseas gloom

Telecom shareholders received more bad news yesterday - their shares ended the day at $5.21, just over half their value at their peak in April.

The closing price matched the lowest close recorded this year, in October, and at one stage yesterday the shares were as low as $5.15.

Telecom's fall came as the overall market dropped almost 1 per cent, following a big fall on Wall St on Friday, and in the wake of a general warning on Thursday by the Bank of England about phone companies' burgeoning debts endangering the stability of global financial markets.

Also, on Friday, Telecom finally declared its interest in Cable & Wireless Optus' mobile assets, which are valued at about $A10 billion ($NZ12.95 billion).

Telecom has dropped 47 per cent from its $9.81 high on April 10.

In market capitalisation terms that means Telecom has lost a massive $8 billion and is today valued at only $9 billion.

The fall comes as substantial changes to the telecommunications industry are expected when the Government announces its telecommunications policy tomorrow.

However, those changes are not expected to be as damaging for Telecom as first expected when the Government set up its inquiry into the industry.

Industry sources say the late announcement only days before Christmas indicateS that the Government does not want to trumpet a policy that may disappoint some players and will compete with Christmas for attention.

The Government has already signalled that it is dumping a key telecommunications inquiry team recommendation that a new regulatory regime be run by a separate industry-specific regulatory body headed by a commissioner.

Finance Minister Michael Cullen said in mid-October, when Telecom's share price took a beating after the release of the inquiry report, that the Government favoured the Commerce Commission being the regulatory body.

Optus' mobile assets are considered far too big a bite for Telecom.

Telecom would not say who its partners might be, but a strong rumour has linked any bid it might make to NTT DoCoMo.

The Bank of England report last week said that major European telecommunications companies had borrowed heavily to pay for so-called third-generation mobile phone licences.

It said several had suffered downgrades in their credit ratings that make it more expensive for them to repay their creditors. About $NZ601 billion in telecommunications company debts is due in 2001 alone.

Britain's central bank foresees potential problems when companies seek to refinance these debts at even more burdensome interest rates.

In addition, bankruptcies "cannot be ruled out" for smaller alternative telecoms operators that are losing money and lack other sources of funds, the bank's Financial Stability Review said.

This has not been a problem in New Zealand where the suspended 3G auction has attracted only moderate interest and looks likely to raise less than $200 million.

- NZPA