Telecom reins in capital spending as it prepares for its 3G roll-out

By Rob Hosking

Friday 22nd February 2002

THERESA GATTUNG: Telecom is still a growth company

Deals to finance Telecom's third generation wireless network are on track, despite growing investor jitters about such projects.

Investor scepticism is stalling the roll-out of some 3G networks internationally and some overseas telecommunications carriers are having to drop the value of the 3G spectrum they hold by up to 90%.

However, Telecom executives this week said their 3G network, being put together with partner Hutchison Whampoa, was on track to start rolling out either late this year or early in 2003 - as promised.

"The technical side is well on track and the financing arrangements are still being made," chief financial officer Marko Bogoievski said.

This week's half yearly result - which prompted a post-Enron flurry of debate about accounting standards - also indicated Telecom has reined in its capital spending, which includes such projects as the 3G network.

The 3G technology will allow users to have full voice, internet and video access on mobile handsets. The Telecom/Hutchison venture has two main advantages over other carriers moving into the 3G area.

First, prices for the spectrum were much more realistic in Australasia than in other parts of the world and the companies did not need to rack up huge debt to buy spectrum rights.

Second, Hutchison is a much more diversified company - it is one of the world's biggest port operators, owns retail chains in Asia and has invested heavily in the energy sector.

The company is understood to be stressing this base as it seeks, with Telecom, to raise the $A500 million to fund the 3G network across Australasia.

But Telecom's Australian expansion is under increasing pressure. While the company reported an improved revenue result from the transtasman operation - Australian subsidiary AAPT's revenues for data rose nearly 40% - the operation is still a long way from being in profit.

It was this concern that prompted Moody's this week to put Telecom under review, citing the Australian expansion and its impact on the company's ability to reduce debt and/or reinvest for future growth. The announcement follows a similar move last October by Standard & Poor's.

Overall, the company reported a profit of $161 million - well up on expectations. The profit came primarily from New Zealand operations.

Despite the renewed emphasis on cutting costs, with its echoes of the company's slash and burn years of the mid-1990s, Telecom was still a growth company, chief executive Theresa Gattung said.

As for the sharper competition from the newly merged TelstraClear, Ms Gattung said the main running would be made in the business area.

"New Zealand businesses increasingly think of themselves as operating in the Australasian market," she said.

"We foresaw that Telstra would have a stronger force over here and that if we wanted to stay as a growth stock we would have to move across the Tasman. We do expect TelstraClear to give us a run in the business market but we think they will still be regrouping after the merger."

Comments from our readers

No comments yet