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Business commentator Brian Gaynor from Milford Asset Management suggests Telecom may be feeling the effects of choosing a cheaper supplier following the outage of its mobile XT network last week.
Telecom's XT network went down last Wednesday, affecting customers in the central North Island and the southern South Island, and was not operational until late Friday night.
Gaynor says when Telecom built the XT network there was concern that they were taking the cheap option by choosing Alcatel as its technology partner. Against Ericsson and Nokia, Alcatel was seen as largely inexperienced.
"There was a lot of criticism that they did it on the cheap and they weren't getting the best supplier/contractor. That seems to have come to root now because they (are talking) about a hardware problem," he says.
Gaynor says another problem was the lack of a hub around Christchurch that could have diverted the network in the event of a fault.
"It does appear - though the company will deny many of these things - that they don't have a secondary system in the South Island, so if something goes wrong in the South Island it's much more likely that the network will be down for some considerable period of time," says Gaynor.
The XT outage has neither been good for the perception of Telecom's ability to deliver what was touted as a world-class system, nor the company's share price. Telecom pays a 24-cent dividend and the share price is well below $2.40, yielding 10% - a figure that Gaynor says shows the market "does not rate the company very highly".
Gaynor says the outage - the second in a month - poses the question of whether Telecom will need to spend money upgrading the network and pay for it by cutting its dividend.
"If they cut it, the share price could fall further. If they keep it, we'll probably see the share price at or around the bottom of where it's likely to be in the medium term," he says.
Telecom is due to make an announcement on compensation for its XT customers at around 2pm on Tuesday.
