Successive governments have taken an axe to New Zealand's largest listed company, with Communications and Information Technology Minister Steven Joyce the latest to change the rules for Telecom.
His predecessor in the former Labour administration, David Cunliffe, forced Telecom to separate its operating divisions, something to which investors took a dislike by punishing Telecom's share price.
This week, Mr Joyce released two proposals for public comment addressing the rural fast broadband initiative and reforming the Telecommunications Service Obligations (TSO) levy.
Delivering fast broadband to rural communities was a priority for the Government, he said.
"We're proposing to fund the $300 million rural initiative through a combination of direct government funding and revenue from a more transparent and effective industry levy than the current TSO levy."
The Government would provide a direct contribution of $48 million and further interim funding of up to $52 million.
The remaining funding would be sourced by replacing the existing TSO industry funding with a more transparent contestable industry-wide mechanism that focused on developing rural telecommunications, Mr Joyce said.
Telecom currently received about $70 million a year, largely to compensate it for supplying local service to rural customers.
The money was sourced from the industry through the TSO levy which was paid by market participants - including Telecom which contributed about 70% - on a market share basis.
Mr Joyce said he was concerned by the lack of transparency around where that money was spent and whether rural customers were benefiting from it.
The new telecommunications development levy to replace the TSO would seek to recover about $50 million a year over the next six years - about $20 million less than was currently the case.
"When the Government tenders for the provision of rural broadband it will be an open and competitive process with full transparency on where the money is spent," Mr Joyce said.
Craigs Investment Partners broker Chris Timms said the proposals ended the TSO "gravy train" for Telecom and replaced it with an industry levy, or tax, to fund the deployment of fibre in commercially non-viable rural areas.
On Mr Timms' estimates, Mr Joyce's proposals would have Telecom paying $33 million a year (65% of the $50 million levy) instead of receiving about $23 million a year in TSO.
That represented at worst a slump in profit of about $50 million a year, or about 7c per share, for six years from 2011.
Vodafone, on the other hand, would have its $23 million TSO contribution paid to Telecom drop by about a third to $15 million (30% contribution to the levy) and payable to the Government instead, Mr Timms said.
"The TSO's days were always numbered, in our view, but the latest proposals create further headwind for Telecom.
"Telecom will no doubt cry wolf over proposed changes to the TSO but in all likelihood, it would have realised the TSO's days were numbered."
The proposed levy effectively left Telecom to shoulder the bulk of the burden of deploying fibre to rural areas deemed not commercially viable.
Assuming the proposals stuck, that provided a stronger incentive for Telecom to secure the bulk of the rural broadband grants to claw back its levy contribution, Mr Timms said.
Forsyth Barr broker Suzanne Kinnaird said Mr Joyce was proposing another negative regulation on Telecom.
Telecom could receive rural broadband development funding from the levy, although that would presumably be capital expenditure, rather than operational expenditure funding.
Rural broadband deployment would be contestable.
Telecom could also be relieved of the obligation to supply services where other parties deployed network assets.
Ms Kinnaird estimated the new regime would be cash negative to Telecom by about $56 million a year for the first five years and cash positive to other industry players by about $6 million a year.
The Commerce Commission's proposed halving of mobile termination rates could also be negative by a similar order of magnitude, although its impact was dependent on pass-through of termination rates into fixed-to-mobile and mobile retail prices.
"In combination we believe these two regulatory initiatives, if both implemented in 2011 as currently planned, would make it very difficult for Telecom to achieve its earnings growth targets of 4% to 6% over 2010-13 - at least in the initial year."
The proposed TSO and mobile termination rate reforms could potentially defer Telecom's growth recovery by a year, making 2011 a further year of broadly flat earnings, she said.
Labour Party communications and IT spokeswoman Clare Curran said while she welcomed the Government's proposals, she was not yet convinced they would truly deliver fast broadband and reliable, affordable local residential telephone services to all rural New Zealanders.
It appeared the additional funding of $52 million would be borrowed from the $1.5 billion ultra fast broadband fund.
That was creative accounting by the Government and needed to be clarified, she said.
Also, no-one knew what the criteria was to implement the new levy, who would set the criteria or the problems that would remain if it were not handled carefully and objectively.
"We also ask whether National has missed the opportunity for a major reworking of the TSO given the growing dominance of the mobile phone sector over fixed landlines and the widespread roll-out of broadband into New Zealand homes, businesses, schools and hospitals," she said.
Telecom chairman Wayne Boyd emphasised at the company's annual meeting on Thursday the importance of Telecom to the economy.
The company directly employed more than 7000 New Zealanders and many thousands more through its partners.
Telecom's investment of $3 million a day was good for the company's long-term health but it was also good for all of New Zealand.
"Telecom remains a cornerstone of the NZX and one of the few large corporations to maintain its head office in New Zealand."
