Telecom expected to make a profit of $131-151m

By Rob Hosking

Friday 9th November 2001

Analysts are picking a first-quarter profit of $131-$152 million for Telecom.

The company announces its first result for its current financial year next week. The estimates compare with an average quarterly result of just more than $160 million over the last year.

The telecommunications market is in the doldrums internationally, and Telecom's increasing involvement in the Australian market, through its AAPT subsidiary, could drag the profit figure down.

Australia has been particularly hard hit by the telecommunications downturn, with the collapse of one carrier, One.Tel, and predictions two weeks ago from the head of Telstra, Ziggy Switkowski, that growth in the sector would stay in the low single digit for at least two quarters.

Telecom's Australia strategy is key to its transition to a growth stock. There is little room left for major growth in the New Zealand market, even though the company can expect some expansion in its mobile and data services.

"The revenue from Australia has to continue to improve - and any continued improvement in New Zealand would be seen as encouraging," J B Were's Andrew White said.

Last year saw a considerable decline in cost of sales for Telecom as the company took a hard line on expenses. Investors would need to see evidence of that hard line continuing, he said.

A further key issue - and an indicator of how the New Zealand economy is going - would be the revenue from data services, another analyst said.

Another key issue would be how many mobile customers are migrating to the CDMA network. The service, which allows data to be sent via mobile phones, was launched in July. Telecom has invested more than $200 million in the new network and - with worldwide investor jitteriness about disappointing returns on the massive capital spending in the telecommunications sector - this will be of considerable interest.

Whether the minutes of usage of mobile phones has increased would also be closely watched, ABN-Amro's Jeremy Simpson said. Mobile and data are the main areas Telecom can grow its revenues, but, as the company has said many times, it is a long-term path.

While its top executives such as chairman Roderick Deane and chief executive Theresa Gattung had talked for several years of turning Telecom into a growth company, the firm's stock price was still priced for low growth, below the $5 mark, analysts said.

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