Telecom CEO Says Shock New Zealand Policies Vex Investors
Shares in Chorus Ltd., the nation’s biggest network operator that split from Telecom last year, plunged last week after the regulator said its broadband access fees should be materially lower. While that proposal would benefit Telecom, as the largest broadband provider, it was unexpected and created more uncertainty for already wary investors, Chief Executive Officer Simon Moutter said in an interview in Wellington.
“It does annoy me that we keep surprising markets in the way we have with this decision,” said Moutter, who was CEO of Auckland International Airport Ltd. (AIA), the nation’s fourth-largest listed company, before joining Telecom in August. “It’s not good for New Zealand.”
Moutter, 52, needs his own investors, of whom the biggest are overseas institutions, to have faith in New Zealand as the nation’s telecommunications industry becomes more competitive. Telecom’s challenge is to thrive as a smaller company in a more challenging climate, after its two biggest rivals merged amid the rollout of a national high-speed broadband network.
The Commerce Commission, an independent government unit, said on Dec. 3 that fees for Chorus’s wholesale broadband, paid by Internet providers, should be cut by almost a third. That sent Chorus’s shares tumbling 14 percent, their biggest drop since listing as a separate company in November last year. Prime Minister John Key then said he wouldn’t rule out legislating if the draft decision became final next year.
“People just completely underestimate the awareness of global investors around the propensity of New Zealand government policy to keep surprising, and causing large fluctuations and market movements,” said Moutter.
Shares in Sky Network Television Ltd., New Zealand’s largest pay-TV company, fell the most on record in May after the Commerce Commission said it would investigate the company’s content agreements on competition concerns. Sky is 44 percent-owned by billionaire Rupert Murdoch’s News Corp.
The Chorus decision would have appeared to investors as “the government interfering in the market” again, said Moutter. While he doesn’t believe that’s the case, the perception and management of such decisions is problematic, he said.
Jenny Bridgen, a spokeswoman for the Commerce Commission, declined to comment.
“The cost of capital and return investors require for investing in regulated New Zealand companies increased after the recent Chorus announcement,” Shane Solly, head of equities at Auckland-based Mint Asset Management Ltd., said in an e-mail.
Telecom’s own shares fell the most in 3 1/2 years in August after the company said that earnings before interest, tax, depreciation and amortization for the year to June 30, 2013, would be flat to slightly lower, as more competition weighed on prices. The Auckland-based company faces a tougher environment after Vodafone Group Plc (VOD) and Telstra Corp. merged their New Zealand units in July.
Moutter, who was chief operating officer at Telecom before leaving in 2008, is working on a comprehensive strategic plan for the company to be released by May next year, he said.
“You’ve got to deal with your cost base,” he said. “We’re moving to a model where over time, if you build this stuff right, it should require a lot less interaction than it does today with customers. Telcos are much too service-heavy.”
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