The Telecom Split

June 20th, 2011 at 9:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

is likely to split evenly into two parts, with shares in its retail arm and worth similar amounts, financial analysts believe.

Telecom shareholders will be given a share in Chorus and another in the yet-to-be-named retail business for each Telecom share they own, if they approve the company split, which is a condition of Telecom’s government contract to build the bulk of the ultrafast broadband network.

Really? Equal value?

I am not a financial analyst and this should not be taken as financial advice.

But personally I will be looking to buy lots of shares in Chorus, and no shares in Telecom Retail. I think Chorus has a very good future, managing both the copper and fibre.

I am not at all convinced that Telecom’s culture is well developed enough to compete on the retail level, without the integrated vertical monopoly. I hope they do, but at this stage I wouldn’t invest money on it.

A look at the annual regulatory accounts shows that the profit from Chorus as a percentage of turnover is much much higher than for Telecom Wholesale or Retail.

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9 Responses to “The Telecom Split”

  1. Elaycee (4,393 comments) says:

    Any ideas how this split affects Kiwi Share?

    [DPF: Those obligations go with Chorus]

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  2. PaulL (5,987 comments) says:

    Chorus would be a regulated monopoly. The profits should be relatively certain, but also relatively low – they’re an infrastructure company. As such, I’d expect a relatively low p/e valuation.

    Telecom retail is operating in a high risk competitive business. Their return on capital should be higher in theory.

    I agree with you though, the likelihood of Telecom making the move to a competitive market without losing substantial market share is pretty low without a very large cultural change.

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  3. Nigel (516 comments) says:

    Telecom retail has real potential managed well, the cell plans are a significantly better than vodafone now I believe anyway, I’m changing today. The broadband business will always be strong.
    In many ways the opportunity is more with retail, on demand movies etc, the stability with chorus IMHO.

    [DPF: I agree the opportunity is there. XT appears to be way better technically than Vodafone's mobile network. I have been close to swapping over. However horror experiences from the past still haunt me]

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  4. queenstfarmer (782 comments) says:

    Re Kiwi Share, free calling remains unaffected, as that was in effect removed from “Kiwi Share” a while ago (by the previous Labour Govt, although over at The Standard they have been in fits thinking that the evils Nats are about to do this). My reading is that the new retail company (“Telecom”) will not be subject to foreign ownership restrictions.

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  5. Elaycee (4,393 comments) says:

    @queenstfarmer

    Thanks. :)

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  6. rosscalverley (83 comments) says:

    Steven Joyce has confirmed KiwiShare is over.

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  7. fredinthegrass (273 comments) says:

    “…..this should not be taken as financial advice.”

    DPF – you under estimate your influence. Folk listen to you!

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  8. Pongo (372 comments) says:

    Chorus should be a nice steady utility company paying good solid divvies. Telecom retail I feel is pretty appalling, I wanted to upgrade my XT phone to Samsung Galaxy S which telecom wanted $999 for or 200 off for a 24 months contract, I am guessing there will be some much better contracts being offered soon so I want to buy the phone outright and be flexible so i bought the brand new Galaxy from eking.co.nz for $603 and it took 3 days to get here. Phone works briliantly.
    Their XT network is brilliant compared to Vodafones old thing but they fail to capitalize on it, hence I believe they are pretty good infrastructure company and lousy retailers.

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  9. David Farrar (1,899 comments) says:

    Fred: I said my posted was not financial advise because under some stupid new law even a blog post like I have made could be deemed to make me an unregistered financial advisor, and face penalties!

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