Yellow Pages sales proposal point to Telecom shifting direction towards wholesale?

, posted: 23-Aug-2006 09:51

Telecom New ZealandIs Telecom New Zealand starting to drift rudderless in the new regulatory environment that's coming up, and which will see the incumbent telco be subjected to competition in many areas that it currently holds a protected monopoly in?

There are indications that Telecom's present management are at a loss as how to deal with a new reality where revenue streams from captive customers are no longer assured. We are seeing some crucial network investment being pushed out until 2007, like ADSL2+, despite CEO Theresa Gattung promising in public it would be deployed this year.

The EV-DO Rev A upgrade for Telecom's mobile data network is also curiously slow to be deployed, despite Vodafone NZ coming out with HSDPA next month. The curiously low amount of money handed over to Lucent for the EV-DO upgrade, NZ$16 million, is only enough to make Rev A available in a few select areas roundabout Christmas time.

In order to remain competitive in the future, there can be little doubt that Telecom will have to up its capital expenditure and make up for the lack of investment in new technology over the past decade. However, shareholders have grown accustomed to high dividends instead so the question is, will they go along with increased investment spending?

Chances are they won't, which in turn could trigger some interesting effects in the NZ market. In fact, I can see Telecom retreating from competitive retail businesses with eroding margins and focusing on selling wholesale access to its network instead.

YPIn light of that, it's no wonder that Telecom CFO Mark Bogoievski is dipping toes into water with a vague proposal to sell off the Yellow Pages directories business. Such a sale would fetch perhaps NZ$1.2 billion according to ABN Amro telco analyst Ian Martin in Sydney, money which Bogoievski suggests could be used to pay for a share buy-back.

Unfortunately for Telecom and Bogoievsky, the markets took a sour view of the idea. Telecom shares fell to their lowest price in 13 years at NZ$3.95 yesterday, as analysts wondered why Telecom would sell off the Yellow Pages which makes good money and isn't subject to regulation anyway. The share price has recovered somewhat today, August 23, to $4.03, but it's obvious that share traders are watching Telecom like a hawk at the moment, wondering where the incumbent is heading.

Other related posts:
The problem with VDSL2, part 2
The problem with VDSL2
The mysterious Dynamic Line Management on VDSL2

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