Telecom New Zealand CEO Paul Reynolds today called for changes to the way the country's regulatory system works, suggesting the current rules could scare telecommunications investors away.

Paul Reynolds
(Credit: Telecom NZ)

The executive made his comments at the company's annual meeting in Wellington today, as the telco grappled with a share price which hit a 16-year low this week. Today chairman Wayne Boyd attributed the share price decline partly to regulatory uncertainty and regulatory changes.

While Reynolds said Telecom's relationship with government and regulators was stronger than it had been for quite some time, he also said New Zealand's basic regulatory framework needed to be improved.

Telecom was making significant investments and the company and its shareholders had the right to expect a reasonable return on those investments, he said. With a commitment already made, discussions were now under way about what prices could be set.

"We'll be engaged in that discussion over the coming months, and I just wanted to make a clear signal that Telecom and its shareholders expect to make a return from actually, probably, the single biggest infrastructure investment that's under way in the country today," he said after today's meeting.

Telecom is carrying out a billion-dollar fibre-to-the-node broadband upgrade that started in Auckland in February and will enable the delivery of fast broadband connections to 80 per cent of New Zealanders by 2011.

"A really mature environment would be one where you had the pricing discussion when you're making the commitment, so then everybody knows every side of the equation," Reynolds said.

"It's not the situation in New Zealand, and we think in the interests of New Zealand, in the interests of investors and the interests of getting infrastructure built, it would be good to get these things lined up."

Boyd said the regulatory issue was a consistent theme in talks with overseas investors.

"There's a competition for capital ... and New Zealand's hamstringing itself by not having a regulatory environment that reflects international best practice," he said.

New Zealand's hamstringing itself by not having a regulatory environment that reflects international best practice

Wayne Boyd

At today's meeting, United States hedge fund Elliott International, which owns about 3 per cent of Telecom, failed to get two independent directors elected to the company's board.

Telecom said shareholders voted to re-elect directors Rod McGeoch and Kevin Roberts. The nominees put forward by Elliott, Mark Cross and Mark Tume, were not appointed. At the meeting, Boyd urged shareholders to reject the American investor's nominees.

He acknowledged there were concerns, especially with respect to the share price. But he said Telecom had the right people, strategy and leadership required to deliver.

Elliott has argued for a full structural separation of Telecom into a network company, which would be regulated with the rest of the business in a less regulated company. But Boyd said it was just too late for structural separation.

"We are embroiled in ... operational separation. It's a massive undertaking and we just can't be diverted from what we're actually undertaking."

Both Cross and Tume seemed to acknowledge that was the reality. Cross said he recognised now was not the time for such a fundamental change, given the challenges facing Telecom.

He also wanted to dispel any "misconceptions", saying he was standing as an independent director and was not remunerated by Elliott.

Tume said that to a certain extent, structural separation was much like the horse that had bolted.

Shareholders were assured that, subject to any material change in circumstances, Telecom intended to pay quarterly dividends of 6 cents per share, for the next two years, to provide a degree of certainty during the period of transformation.