Telecom sees its biggest challenges still to come

Wayne Boyd says a split would require investor approval. Photo / Steven McNicholl

Telecom's normally vociferous shareholders stayed silent at the company's annual meeting in Christchurch yesterday.

Despite the challenges faced by the company in the past year, including major outages to its much-vaunted XT mobile network, a sinking share price and the likelihood the company may split in two to participate in the Government's ultra-fast broadband (UFB) initiative, none of the shareholders at the meeting had a question for the board.

Chairman Wayne Boyd said Telecom remained open to partnerships with owners of fibre assets, including the three parties now in prioritised negotiations with the Government, "where partnerships can improve the overall economics of a national solution".

Last month Government investment vehicle Crown Fibre Holdings said it had entered prioritised negotiations with NorthPower, the Central North Island Fibre Consortium and Alpine Energy, which are bidding to lay optical fibre in the Whangarei area, several Waikato, Bay of Plenty and Taranaki centres, and Timaru, respectively.

Boyd said independent reports had calculated the total cost of achieving the Government's 75 per cent cover vision as between $6 billion and $8 billion.

"Private investment will be required to bridge this gap."

Boyd said Telecom had since had formal feedback on its proposal, which included the company split, a national fibre network, rolling in the separate rural broadband initiative and regulatory rollback, from the Ministry of Economic Development and Crown Fibre Holdings.

"For Telecom, much more than any other participant, involvement in UFB is complex. But the potential rewards are also so much higher for all concerned," he said.

The split of Telecom so it could participate in the ultra-fast broadband plan would require shareholder approval, so there would be no question of giving value away in the process, said Boyd.

"So we must develop a scenario for involvement that meets the Government's objectives, delivers for New Zealand and generates a return for our shareholders that is better than non-participation all at the same time."

Boyd said Telecom would not participate in the ultra-fast broadband process at any cost.

"But be assured that should Telecom not be successful in agreeing an appropriate package with your Government, your company is well positioned to co-exist with state infrastructure," he said.

Chief executive Paul Reynolds said despite the huge changes Telecom had undertaken in the past two years some of the biggest challenges the company had to face were still to come.

Globally the industry faced tough times with stalled revenue growth, said Reynolds.

But customers' appetite for new services continued unabated, wanting more for less, he said.

"These next-generation services are capital-intensive, but asset lives are shorter and the services are often lower margin than the traditional services they replace."

Reynolds said this called for a huge focus on costs to generate adequate returns, giving the example of the 200 management jobs cut in the past year.

"We think partnering with the Government on UFB and structural separation is definitely worth considering, provided we can agree a better regulatory framework, with lower ongoing investment costs and less strangling regulation of our retail businesses."

Telecom shares closed down 6c yesterday to $2.02.