NZ telecoms regulatory credit risk relatively high: S&P

Ratings agency Standard & Poor's ranked the New Zealand telecommunications sector as having the second-highest degree of regulatory-driven credit risk in the Asia-Pacific region.

Hong Kong is viewed as having the lowest risk, and Thailand the highest, while India shares second highest with New Zealand, just above Australia.

A high regulatory risk score could be driven by regulatory-driven actions, that were creating material negative credit events, such as the proposed structural separation of Telecom, a S&P report published today said.

Under the proposal, Telecom's monopoly fixed line access network assets will be separated into a stand alone regulated network company.

"Given these fixed-line access networks are a driver of strong credit quality for these entities, this separation process is putting pressure on credit quality," the report said.

It noted that once the structural separation of monopoly fixed line networks in this country and Australia was completed, S&P expected regulatory risks to moderate and be focused primarily on regulating the fixed line access network.

The telecoms sector had long held an attraction to credit markets given its resilience to economic cycles and strong cash flow generation, the report said.

But companies were grappling with adapting to the changing pace of regulation and competition while tackling increasing demands for hefty investments in new technology.

The report also expected significant ongoing capital demands on the sector in the Asia-Pacific region.

Those funding pressures would come from a range of sources, including new network investments and potential mergers and acquisitions activity, as well as potential investments in media content and platforms to support product differentiation and provide further avenues for growth.

But, despite the pressures, S&P did not expect the sector's generally prudent approach to financial risk management to change materially in the next few years.

"Relatively low debt levels and strong cash flow generation should allow the majority of our rated telecom companies to fund required capital investment within their current ratings."

New Zealand was ranked fifth equal from the bottom, along with Indonesia, out of the 15 countries surveyed, for degree of technological development in the telecoms sector. Japan was top, followed by South Korea and Australia.