Australian telco stocks make a comeback


After a disapponting year, Australian telco stocks such as Telstra have been bouncing back in November

By Jane Searle

SYDNEY, Australia (CNN) -- Australian telco stocks are bouncing back after a disappointing year as investors move to "safer" stocks, a new survey shows.

Since the end of October, rising prices for telco shares have lifted the Australian Stock Exchange's telco index by 7 percent.

This compares to a 3 percent gain for the ASX All Ordinaries, according to the Asia Pacific telecommunications partner for Deloitte Touche Tohmatsu, Peter McIver.

McIver released Deloitte's annual telco index survey on Thursday.

The major companies on the Australian telco index include Telstra, SingTel (after absorbing Optus), Hutchison and Telecom New Zealand.

From November last year to October 31 this year, the ASX telco index fell by 29 percent, sending it below the ASX All Ordinaries for the first time in three years.

McIver said this was a likely flow-on effect from the March 2000 "tech wreck", when high-tech stocks around the world began to decline.

Yet good long-term performance saw the ASX telco index out-perform the FTSE and Nasdaq telco indices in 2001. They fell 51 percent and 65 percent respectively.

Telstra's role key in comeback

McIver emphasized Telstra's role as key in the comeback, due to its heavy weighting in the index. Telstra shares have risen from A$4.90 on November 1 to A$5.36 Thursday, a gain of 9.4 percent.

"Telstra has achieved a record profit, it has a strong balance sheet and cash flows and it has reviewed its growth strategies," he noted.

Strong performances from TCNZ and Singtel/Optus also contributed to the telco index recovery. Lower, "more appropriate" prices for 3G spectrum licenses were cited as another factor.

He said increased competition in the telco sector had outstripped growth in demand, while the adoption of new technology had been slower than expected.

McIver said market conditions would lead to a rationalization of the 90-plus carriers now in the Australian market.

"Stronger players [will] seek to acquire market share from those whose share prices are low, who have made investments in infrastructure, and whose business models are struggling".