Spark New Zealand, formerly Telecom Corp, has slipped from being the country's largest listed company, as investors mull its transformation away from telecommunications and the risk of increased competition.

Earlier this week, the Auckland-based company's share price dropped to its lowest level since last August. Spark has fallen from being the NZX's largest listed company by market capitalisation, valued at $6.51 billion in February, to the third largest at $5.17 billion today. Fletcher Building has the largest market cap, at $5.65 billion, followed by Auckland International Airport, at $5.45 billion.

Spark is chasing earnings growth in a shift away from its bread and butter land line and telecommunications service to focus on data, mobility and cloud services. Last year it launched its online streaming service, Lightbox, to compete against global giant, Netflix and the local Sky Network Television's Neon offer.

“It's hard to see because of the way the digital landscape is changing so much, it might just be that investors in that stock need to get used to the fact that you're not going to get black and white scenarios anymore,” said James Smalley, a director Hamilton Hindin Greene. “They're almost going to have to trust management on its ability to navigate what's probably going to be challenging waters going forward."

In 2014, Spark's share price gained some 32 percent on the New Zealand stock exchange and in early February, its share price climbed to a near eight-year high of $3.535. But since then the share price has declined, with Spark being the fourth-worst performer on the benchmark index over the past three months, having fallen some 12 percent.

"Uncertainty is one thing that share markets and share prices do not like,” Smalley said. "Until that uncertainty is removed, you might see continued selling.

Adding to Spark's transformation uncertainty, Smalley said, was the legal proceedings New Zealand broadcasters, including Sky TV and Spark's Lightbox, launched earlier this week, against internet service providers, Bypass Network Services, CallPlus Services, Orcon and Flip Services. The broadcasters say the 'global mode' service, which gives customers access to offshore online content, breaches the local content providers' copyright.

Meanwhile, the arrival of ASX-listed M2 Group, the voice and data services company, in the local market, after it agreed to buy New Zealand's CallPlus, the country's third-biggest broadband and telecommunications services company, had investors worrying about increased competition during Spark's business transformation.

"Anything that could potentially mean more competition for what was a nice, almost like duopoly between Spark and Vodafone, could be seen as further competition and erosion of margins," Smalley said.

Shares of Spark rose 1.1 percent to $2.83. The stock is rated an average of 'hold' based on the consensus of 10 analysts surveyed by Reuters, with a target price of $2.94.