Telecom New Zealand Hangs Up.

Telecom New Zealand's [TEL.NZ] profit announcement last week reveals a company in gradual decline.

There are many reasons for this, not the least of them being the fact that management have always had a siege mentality to competition, that is, they tended to respond to rivals in a reactive rather than a proactive way. Their customers suffered on monetary and service levels simply because Telecom's monopoly position allowed them to do so.

When Government moved to untangle their monopoly their shortcomings were revealed to a greater extent than we already knew. Overwhelming arrogance seemed to be the order of the day.

Underspending in infrastructure over the last 18 years has left the company in a position where it now would have to spend multi billions just to get their networks and infrastructure up to speed to present day technology so they could offer their customers anything close to high speed broadband or mobile technologies that allow modern fast content.

The shortsightedness of the past seems to pervade Telecom's culture to the core. I say this because the companies answer to falling profits and revenue in the fixed line business was to sell the Yellow Pages unit to a Canadian Pension Fund for NZ$ 2.2B earlier this year. Roughly half of the proceeds will be dispersed to shareholders.

The Yellow Pages unit was one of Telecoms most profitable divisions, contributing over $200M in before tax profit and set to increase revenue and profit in years to come. The new owners have increased their own advertising for their product and are concentrating on growing their online presence.

As a business owner myself I would be ditching declining businesses rather than flogging off the most profitable.

To be sure $2.2 B is a nice little wedge of moola but it is a short sighted of management not to look towards its future in a more considered manner.

Most of Telecoms other businesses are either mature or near maturity. Fixed line is in decline, Mobile is reaching saturation and "Broadband" or what Telecom call broadband is constrained by their 19th century copper wire outlook in a 21st century world.

Lessons that should have been learned in the 1990s: lack of investing back in the business, slow to respond to competition etc, still haven't reached managements brain stems and look unlikely to do so unless coerced by Government intervention.

Management even suggested last week that Taxpayers should fund the badly needed infrastructure needed if New Zealanders "...wanted broadband quicker...".

For a communications company, Telecom New Zealand are not communicating the right message. Its customers continue to get an engaged signal and its clear message to the public at large is that they just don't care.


Telecom NZ @ Share Investor

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Global Credit Squeeze: There is no Free Lunch

The current news about what is being called the "global credit squeeze" has got me thinking.

Like every other man and his dog I have a few things to say about the subject. The implications for share markets, lending between banks and institutions involved directly with dodgy loans and those invested in companies holding those loans have been crystal clear over the last two weeks.

Market participants have reacted in a highly negative way which has spread fear and some loathing amongst the investing community. As I commented a few days ago, I and nobody else is entirely sure about how bad the squeeze is, but we will find out soon enough. What is clear though is that we are talking multi billions of dollars of losses.

Banks and other lenders have been lending money to people who cant afford it and surprise surprise they cant pay it back.

In New Zealand we have already had a local taste already of what is currently happening globally, with several finance companies exposed to risky loans going belly up and investors in those finance companies being out of pocket.

Globally though, with the exception of countries like New Zealand and Australia, State financed backing has been pumped into the banking sector to "increase liquidity" and stem the flow of losses on financial markets.

Now I do understand how this happened but what I cant begin to fathom are the details and what this means in detail: how these taxpayer funded "loans" get paid back, how much if any interest is charged and what happens if the banks and institutions getting these state funds cant pay the loans back because the losses they are exposed to are greater than they have let on?

So many questions I have huh?

I feel uneasy about the billions being "lent" to institutions in the first place to prop up their liquidity problems. Surely they should just take the hit for writing bad loans to begin with and then either fold or move on the wiser and not expose themselves again. After all the guy living next door to you ain't going to bail you out if you cant meet the mortgage payment.

In my humble opinion ,I think the interventions by the likes of the US, European and Asian States have merely postponed the inevitable and the interventions overwhelm the problem it was originally trying to ameliorate. These over extended banks with cash flow problems will take big hits anyway and interventions by governments meddling in money markets are just going to end the way most government intervention does.

Badly.

One thing is very clear though. Regardless of whether banks pay back taxpayer money or not. Giving away your equity like this does have a material effect somewhere. There is always a downside when money is "lent" without it being worked for.

We are talking large sums here and we probably haven't seen the end it it.

Hang on.


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Burger Fuel: Beefing up store numbers

Your favourite search topic on the Share Investor Blog is "Burger Fuel" and far be if from me to care about being labeled a populist, but never mind I will wear that label with pride as long as the readers keep coming.

Here is a BFW update in week 3 of the companies listing on the NZAX.

Sellers are queuing up now at way below the NZ$ 1 IPO price with sellers at .80c and the first buyer at 60c , although 60c clearly values the company too high. No trades as yet today.

Getting closer to my entry price of below 30c but still no cigar.

News out today also that BFW have opened their 22nd store in Tauranga. Good on them for doing so and I hope the surfies down there get the munchies as often as they can, so as to frequent their local burger bar and boost the BFW share price.

It could definitely use the help.


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c Share Investor 2007

Take an Investment tip from New Zealand's NZX

The favourite topic for us investor hounds and writers of the moment is the weakening global share markets.

New Zealand is always first to react on Monday after the previous Fridays close on Wall Street.

React it did today by falling almost 40 points or 1%. Already down sharply on Friday 10 August New Zealand time our market takes the lead and has no other influence until Australia's ASX opens 12 Noon NZ time.

Today the ASX lead its own way up, Asian Markets followed somewhat and it will be interesting to see what Wall Street does New York time Monday morning 13 August.

The thrust of this piece is really that if you look to the New Zealand market, the NZX, we really have an advantage because when world markets close during our morning hours we have a chance to digest the figures from other regions , make a decision and act upon it when our share market gets going at 10.00am. Perhaps then making more rational and considered decisions instead of the spur of the moment stuff that international bourses tend to respond to.

Of course very few international investors know that New Zealand even has a share market but if they did they would find it an advantage to follow what is going on down here in the respect of investor sentiment in a region that is first to open.

Clearly the NZX doesn't have economic impact but international market watchers need all the information and advantage they can when looking at the impact their own portfolios could have and behave when their markets open the following day.


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