Telecom New Zealand Ltd [TEL.NZX] has been in the news for the past week because the government has announced that they are going to be the company that will roll out the majority of the taxpayer subsidised Fast Fibre Network (FFN) that will apparently provide far greater speeds for our internet services than we currently have.
This means that Telecom NZ must split into two separate companies in order to satisfy the rules and regulations that government have set down for the implementation of the FFN.
This will mean that Chorus, the part of Telecom whose business it is to build and maintain telecommunications infrastructure for themselves and other players and its retail arm, Telecom Retail - the part of the company that most customers of Telecom deal directly with and where they buy their mobile, internet or fixed line products - must be split into two completely separate companies. This means separate listings on the stockmarket for both companies and a duplication of a whole host of management from the floor sweeper middle manager right up to the CEO.
Of course this means cost to separate and will be bourne by TEL shareholders in the first instance and customers through higher prices as a secondary affect of this.
Investors will of course be wondering to themselves, well which company of the two should I invest in and if I am already a TEL shareholder which stock should I ditch, if any?
In my humble and not so humble opinion I would put my money of the Chorus part of the business. It is the part of Telecom that has a huge monopoly through the domination of their telecommunications infrastructure - copper and fibre cable criss-crossing the country - and as I really love monopolies this part of the companies business will do well, especially as they appear to have a unregulated first 10 years where they can set prices and the only arbiter of consumer fairness will be the usually intemperate Commerce Commission.
While Telecom's retail division has a few million customers that the new Chorus will probably look after, competition in the telecoms retail area should eventually keep all important margins down from present levels and that will impact on the profitability of the new separate retail division of Telecom.
The split coming at the end of 2011 will mean investors in Telecom will receive stakes in the two new separate Telecom entities and will probably do well if they bought the companies shares at the right price.
It might be wise though for them to consider selling shares in the retail company and stock up on Chorus shares.
My pick is that Telecom will take this opportunity to ditch the Telecom name altogether, a name wrapped up in so much negative history that their retail business would do better to leave that all behind.
Judging by their recent logo shoosh-up it is bound to be something silly.
I'm picking Burst!
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