Telecom's profit tipped to plunge

08:42, Jun 15 2009

Analysts' expect increased competition and the economic downturn to have further slowed Telecom's mobile and fixed broadband market growth in third-quarter results due out tomorrow.

The company's earnings before interest, tax and amortisation (ebitda) are forecast to be about $430 million, down 8.2 percent from the same time last year, and net profit $100m, down 27 percent.

The telco added the lowest level of broadband customers in 17 quarters in the second-quarter result.

 "We believe growth will remain suppressed in the third quarter, increasing the importance of retail share,'' said Goldman Sachs analyst Tristan Joll.

Vodafone captured large groups of customers with free broadband deals in 2007 and 2008, and Telecom was still suffering from the effects of this, he said.

He expected mobile subscriber growth on Telecom's code division multiple access (CDMA) network to be offset by average revenue-per-user declines of 10 percent year on year, due to widespread discounting to retain customers.


This will be the last quarter that Telecom reports on its CDMA platform in isolation, as it gears up for the imminent launch of its new third generation (3G) XT network.

ABN Amro Craigs analyst Geoff Zame said the result would be overshadowed by regulatory uncertainty around the Government's $1.5 billion fibre broadband plan, and the hype surrounding Telecom's mobile launch.

Vodafone and Telecom sparred in the High Court yesterday over Vodafone's allegations that Telecom's new network is causing significant interference on its network, causing it to lose customers.

Joll said he believed the legal stoush would delay Telecom's scheduled mobile launch next Wednesday.

Credit Suisse analyst Greg Main has reduced his rating for the company from neutral to underperform ahead of the result, saying its  share price doesn't reflect the risk around its transformation and the impact of the Government's fibre proposal.

Telecom would lose more customers on its local loop unbundling network for the third quarter, given that its wholesale customers were slowing expansion of services due to the tough economic outlook, he said.

Credit Suisse expects Telecom's Australian operations to remain steady with ebitda of A$19m ($24m), compared to A$20m in the second quarter.

Telecom is hosting an analyst briefing day on May 28 in Sydney, so is likely to defer major discussion on its fibre-to-the-home proposal, capital expenditure and outlook until then.



The Independent