Analyst: ComCom cabinet ruling "clearly a positive for Telecom"
Orcon has seized on ABN Amro Craigs comments, and Telecom’s zooming share price yesterday, as proof that the Commerce Commission ruled the wrong way on sub-loop unbundling. ABN also called the commission’s pricing misleading.
Telecom shares (NZX: TEL) began yesterday at $2.59.
After a session that included the commission’s ruling on so-called sub-loop unbundling (the price competitors like Vodafone and Orcon would have to pay to access or install their own gear in its roadside cabinets), Telecom closed at $2.69.
“What does that tell you?” asks Orcon chief executive Scott Bartlett.
“While the price has come back a little this morning it’s still up around two percent on the previous day’s close. That tells me investors like what the Commerce Commission said, and why wouldn’t they?”
In a newsletter to clients following the commission’s ruling, ABN Amro Craigs’ Geoff Zame wrote: “The economics of sub-loop unbundling were always going to be challenging but the pricing in today’s final determination from the Commerce Commission effectively rules out access competition at the cabinet, clearly a positive (albeit minor) decision for Telecom."
The market seems to agree that it is positive, but minor. Telecom has given back some ground today, trading around $2.64 mid-afternoon.
Commission’s pricing misleading
In its sub-loop determination, the commission conceded that cabinet access would cost 26% more than the equivalent charges for competitors to access a Telecom phone exchange - but that cabinets allowed for premium services (such as VDSL2, a turbocharged form of ADSL2+ that Telecom plans to launch before the end of the year, at extra cost). The commission said pricing would vary cabinet to cabinet, based on the number of connections.
“The 26% premium is misleading and is a best-case scenario, in our view,” wrote Mr Zame.
The analyst tends to agree with Vodafone, which yesterday said that given its market share, and the number of customers it was likely to attract, it would have to pay a 50% premium.
Mr Zame says the commission’s decision ensures sub-loop unbundling “remains a pipe dream”.
He says the unfortunate situation (for customers) is borne out of the fact that New Zealand was one of the last western countries to unbundle its local loop (that is, open the dominant telephone company’s exchanges up to competitors) but one of the first to introduce fibre-to-the-node (that is, roadside cabinets that bring fibre closer to people’s homes.
But while the commission seems to have, on balance, made a favourable ruling toward Telecom on cabinets, ABN Amro Craigs has previously noted that the cost of the cabinet roll-out - mandated by government regulation - is extremely capital intensive (each cabinet costs $145,000 and collectively the 3600 cabinets built during the process will use more marine-grade aluminium than the boating industry). Telecom faces other challenges, which also help to keep its capex high.
Accordingly, the analyst has a hold rating on Telecom, and a 12-month target price of $2.41.
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Comments and questions15
So this is just a recommendation from the Com Com to the government, which means there's still time for the Minister to overturn it and tell them to do their sums again.
Minister? What do you say? Can you support a commission that thinks it's OK to price competition out of the market?
Really, think about this. If you built something for your business but other businesses were allowed to resell it at a fraction of the cost, would you be happy?
NO, I would not. Telecom are spending billions, why should someone else be allowed to come in and use their equipment at a low rate. I say they should build their own cabinets, or work in a joint venture.
Some infrastructure is just too important to be left to private 'enterprise'. The steel rails that spanned NZ, to unite its people and to promote commerce, were sold by the government years ago. They were bought back by the government last year. It is now time the copper rails, which do the same things, were bought back too.
I blogged today about the alternatives to handing Telecom the broadband market on a plate (as appears to be the current plan)
Perhaps it's time to declare broadband a critical infrastructure and use taxpayer funds to create a publicly owned network.
What about Telecom? Wouldn't that be grossly unfair to use public money to compete with an existing company?
Hell yes it would. But Telecom's had its chances to play fair and have blown it (several times). Remember Telecom, those who live by the psuedo monopoly may also die by the pseudo monopoly.
If Telecom is going to abuse its monopoly to gouge the market and hold its competitors at arms-length then they have no grounds for complaint when, having taken a step too far with such abuse, find the tables turned.
http://aardvark.co.nz/daily/2009/0619.shtml
[See also NBR's coverage of Telecom and Vodafone's respective proposals to the government for a single national fibre network, rather than the govt's mooted 25 regional fibre companies http://www.nbr.co.nz/article/vodafone-makes-secret-fibre-plan-public-102693]
Steven, if that were the case it would be easy to tell the other companies to push off... but Telecom was ordered to open its doors to competition after years of stiffing it. Structural separation was supposed to do away with this kind of game playing. Competitors were finally allowed in to Telecom's exchanges, so what did Telecom do? Accelerate its cabinetisation programme to keep them out.
If this govt has any balls it will stand up to Telecom on both this issue and the Fibre to the Home issue. Telecom has proven itself incapable of playing nicely with others. It's time it was taken in hand.
More socialist whining drivel. Will the last investor in NZ switch out the lights when leaving
Buy back the infrastructure is a good and fair solution. Let us remember that Telecom was sold by The Government of NZ to private enterprise and that the owners are also, in some way or another, kiwi mum and dad investors who have seen their investment halved by the changing of the rules; and for what? So that some big City yuppies can download innane pop music or videos onto their computers.Buy it back but dont steal it.
Labour all but destroyed Telecom through it lack of undertsanding of commerciality. Competition doesnt mean free for all nor does it mean providing a leg up nor subsidisation. Time to get on - either the competitors want to get going or they dont, they either have capital or they dont .. stop whinging.. put up or shut up ... banged on for long enough without any merit whatsoever. The market doesnt owe anyone a living.... see how it done in Australia - succeed or suffer.
They aren't going to be able to raise prices, any more than they could when they rolled out their new mobile network. This allows them to continue to maintain leadership. The price should be the _same_ as access in the exchange.
Unfortunately there are not any laws to regulate companies from creating loopholes to out price their competitors in the stock market and monopolizing their industry. Telecom's situation is an example of that, and it needs to change.
-Nikki-
1 dollar ebooks
selling photography 101
your innate lack of understanding of telecommunications is astounding....
Labour killed Telecom? Can you explain yourself? Telecom inherited its position from the former SOE, and it investments have been to secure its own monopoly.
So what your saying is any one else has to build its own network? Will you be paying the $20,000 a month a company would have to charge to make that feasible?
No, which effectively kills all competition, leaving us in the situation we have been in for the last 25yrs
Maybe we should put Cullen in charge of "buying back this 'strategic' asset". Moron. Nothing good ever comes of government ownership
When the last Government 'unbundled' the local loop, they should have bought back - or even just taken back - the network. That way Telecom would be on the same board as the other telecos and have to purchase capacity on the network.
Selling a major infrastructure to private enterprise does NOT work.
Some years ago the US Government moved to build a national network because of telecos inability to co-ordinate. That was for security reasons post 9/11.
The last asset the Govt bought was Tranzrail. Paid too much subsequently wrote down its value. In that time have services improved? Has it lowered its pricing to shift volumes from road to rail?
In fact the Minister is still talking about shutting spur lines that are uneconomic - the same story that its private enterprise owner spouted.
Alternatively you could consider Ports of Auckland which has seen its volumes increase, pricing collapse are returns go through the floor. In fact it would seem that they have to sell assets to finance the business given its untenable debt position. Looks like a "strategic asset" is being run for the shipping lines not Auckland or New Zealand.
Hard to believe that changing ownership of the "copper rails" will change anything. Government run assets DO NOT work.
With pricing like this, there is only one alternative.
National has said we need a nationally programmed FTTH network.
This is the government drive and it is using the Commerce Commision to bludgen Vodafone, TelstrClear and others to support it by setting the SLU prices very high.
The government is essentially saying, If you cannot make a case for SLU at the prices we set, you better support FTTH or you can just stew in your own juices.
This government is totally duplicitous when it comes to driving it's policy. Failed on doing the FTTH on real economics. Force perople who do not agreed with it to do so otherwise they will find it hard to make money in NZ.
Folks. Read between the lines about what this government proposes.
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