Peter Nowak: Lies and damn lies, look who's talking

The knives have come out in the battle of broadband, and embattled Telecom is seeing a few allies come to its aid. There's no doubt the company needs them, but as the old adage goes, with friends like these, who needs enemies?

One such ally, Macquarie Research Equities, may actually be hurting Telecom's cause. The stock brokerage last week issued an embarrassing report titled "Lies and damn lies" that took shots at the media, labelling coverage of Telecom as "factually incorrect", "misleading" and "biased".

The brokerage hadn't taken Telecom's negative press seriously before, but now - with the Prime Minister sounding off on the country's poor broadband situation - "the risks have risen".

"The media attack on Telecom seems to be having the political impact desired by Telecom's competitors," the report says.

It's not the trite line taken by Macquarie that's embarrassing for the brokerage, it's the report's suggestion that all is well in New Zealand broadband. And even more worrying, for investors at least, is the suggestion that all is well with Telecom's stock.

Neither of these claims has the slightest grounding in reality.

New Zealand's broadband woes are well documented. We're 22nd out of 30 in OECD uptake, and that's that. Slow speeds, high prices, data limits and access problems have all contributed to Kiwis' low interest in broadband.

But those problems are just window dressing. The real point is that New Zealand will continue to wallow as long as one company is allowed to control speeds and pricing, and thus the entire market.

That's not just the sentiment of Telecom's rivals such as TelstraClear or ihug, it's what everyone - from the big tech firms to economists to small businesses to home users - is saying.

But according to Macquarie, "apart from a couple of issues (upload speeds and business DSL pricing), NZ in fact compares well to both its closest neighbour Australia and to other similar countries".

The average Kiwi consumer, Macquarie says, "is better off than their Australian counterpart, despite popular claims to the contrary".

The comparison with Australia is absurd. It was only a year ago that Australia ranked just as poorly as New Zealand in the OECD uptake statistics, at 21st place.

The country is in the midst of unbundling incumbent Telstra's network to allow rivals access, and with stronger wholesale regulations than we enjoy, it has since managed to improve its situation somewhat, moving to 17th place.

But make no mistake - Australia is still as big a loser in the global broadband stakes as New Zealand. And with Telstra playing wholesale hardball as of late, it wouldn't be at all surprising to see the country take a step backward in uptake rankings over the next little while.

Macquarie's report doesn't make any comparisons with other countries, basically because it can't.

New Zealand's speeds and prices are laughable when matched to any of the top 10 countries, so comparing ourselves with Australia is not exactly aiming high.

This is especially true if you compare stock performance. While Telecom's stock has dropped 15 per cent over the past year, Telstra has plummeted 23 per cent, making it one of the worst-performing telco stocks in the world. Given that Telstra is so ingrained in Australia's broadband situation, is this really a company whose lead we want to be following?

But the brokerage is somehow confident the New Zealand Government will come to its senses, see there really isn't anything wrong with broadband here, and leave regulation alone. Macquarie is thus still bullish on Telecom's stock, with a 12-month price target of $6.40.

However, with the company's stock trading in the $5.50 range, that's an overly optimistic forecast, especially when non-regulatory issues are taken into account - something the report conveniently omits entirely.

Incumbent telco stocks are dropping worldwide - Deutsche Telekom is down 16 per cent over the past year, France Telecom 20 per cent, Spain's Telefonica 15 per cent and Bell Canada 7 per cent. Those are just a few examples.

That's primarily because their traditional revenues are on the decline thanks to lower-cost internet-based calling - a fact Telecom itself has acknowledged. The big telcos are still trying to figure out how to transform their businesses in the face of new and disruptive technologies, and most are struggling to do so.

Interestingly, the exceptions to the rule seem to be the ones taking proactive measures. British Telecom, which voluntarily agreed to separate its wholesale and retail arms, has seen its stock resist the trend and remain flat over the past year. US telcos have generally seen their stocks improve, largely due to recent merger activity.

Add this global trend to a possible downturn in the New Zealand economy and a worsening dollar, and it's very hard to be bullish on Telecom's stock.

The Government's decision on regulation will ultimately come down to Telecom's stock concerns versus the public good. Given the realities, for Macquarie to accuse the media of being misleading seems pretty foolish. The brokerage should be very careful of who it's accusing of lies and damn lies.