Joe Hendren

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Monday, May 02, 2005

Telecom win the Roger Award for 2004

Just got back from the Roger 'awards' ceremony, where Telecom was proclaimed to be the worst transnational corporation operating in Aotearoa in 2004. Contact Energy was the runner-up.

Last year Telecom turned their effective monopoly of most of the NZ telecommunications market into another massive profit. The dominance of Telecom over the New Zealand sharemarket makes the Government too nervous to dismantle their monopoly, even shying away from small steps such as local loop unbundling.

New Zealand continues to suffer ongoing negative effects from the sale of this strategic asset. To give one example Telecom have used their monopoly over the local loop, to prevent other operators from offering more attractive broadband options over the New Zealand network.

From 1995 to 2004 Telecom paid out more than its net earnings in dividends, meaning that the company is effectively being cash stripped by its wealthy foreign and local owners (reported earnings of NZ$6,464 million and dividends paid out of NZ$6,698 million). CEO Teresa Gattung takes home a salary of $2.82 million, earning more in a single week ($53,270) than the average New Zealander earns in an entire year.

In a financial analysis accompanying the Judges Report on the Roger, accountancy lecturer Sue Newberry makes two worrying observations about Telecom. As Telecom also operates in the US, it also must file financial reports according to the US accounting standards, standards that have been tightened since the Enron scandal. Telecom's total reported profits for the last four years are less than half of those reported in New Zealand. Since 2001 Telecom have incurred losses of $604m in Southern Cross Cables Limited (a subsidiary registered in a Bermuda tax haven), losses they did not have to declare in their NZ results. Also the pattern of shareholding in Telecom is changing, with foreign investors selling down their shares while NZers and Aussies buy them up. While this may improve NZ current account deficit, this and the fact Telecom continues to pay more out in dividends than it makes in profits suggests Telecom is financially unsustainable and should not be touched with a bargepole.

Still, if Telecom does crash like Air New Zealand, it may provide the Government with an opportunity to renationalise Telecom at a comparatively low cost :)

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