Telecom New Zealand

Telecom New Zealand - Risks

This report reflects the research and analysis I've performed on this company. It is provided for informational purposes only and does not constitute personalized financial advice nor an endorsement or solicitation to purchase stock in this or any other company. Please do your own due diligence or hire a financial advisor before making any investment decisions.

Telecom New Zealand research report

Pricing pressure - the industry worldwide is experiencing margin pressure as consumers (and governments) demand faster, better service for lower prices. The telecom industry in general is migrating from high-return fixed-line operations to lower-margin mobile and broadband services.
Regulatory issues - Telecom companies historically have encountered challenging regulatory environments from the old Ma Bell break-up in the US to the increasingly hostile EU Commission.
High capital investment requirements coupled with uncertain technological, consumer and regulatory environments means lower margins should be expected going forward.

Telecom New Zealand is being forced by the government to implement an operational separation of their network, wholesale and retail businesses. The company estimates this cost at NZ$200M plus NZ$40M annually for the next four years.
The company may be at a competitive disadvantage in the short-term. While Vodafone, TelstraClear, et al can spend the next months mapping out competitive strategy to enter or expand retail operations, Telecom's wholesale operations will have to design and implement a plan to provide to these new retail entrants while Telecom's retail segment will have to plan their retail strategy.
New Zealand is a relatively small country with a population of roughly 4M. Additionally, the country has few urban clusters and many pockets of people in the rural areas. For a capital-intensive industry like telecom, returns on investment are more challenging from a density perspective. By virtue of being the largest domestic company in any industry, Telecom is expected to shoulder a disproportionate share of any national technology initiative.
The company's largest and most profitable segment, fixed-line calling, is declining at a steady clip. Telecom faces a challenge in migrating this business onto lower-margin mobile and broadband segments in the face of challenges from Vodafone and TelstraClear.
A shuffling in the executive suite may mean a period of adjustment as a new CEO steps in and the CFO and another high-ranking executive exit after losing out on the top job.
The company took a sizable writedown (NZ $1.3B or 23% of revenues) on their Australian operations and historically, are fairly uncompetitive in that market despite continued investment.

DISCLOSURE: Please see our portfolio page for all disclosures.

The Enlightened American

Telecom New Zealand - Risks