KEY POINTS:
In his first and last opportunity to front a Telecom earnings result, acting chief executive Simon Moutter had an impressive number to point to yesterday - a $3 billion net profit.
Moutter, who is warming the seat for CEO-designate Paul Reynolds, said this was a "fantastic result".
But,
as he acknowledged, the profit was boosted by the $2.1 billion sale of the Yellow Pages Group in March.
Take that out and the net profit still looks better than last year - more than 16 per cent higher - but that's because Telecom paid less tax and had lower depreciation this year.
Actual underlying profit - adjusted earnings before interest, tax, depreciation and amortisation - fell by 3.6 per cent for the overall business to just under $2 billion. Telecom's operating revenue barely grew, while operating expenses grew nearly three times as fast. That's hardly a fantastic result.
Later Moutter clarified what he meant: "I think the outcome on the sale of the Yellow Pages Group was fantastic and deserves to be recognised."
Goldman Sachs JBWere achieved a blockbuster price for Yellow Pages when it sold it for Telecom in March - at 13.2 times forward earnings, the deal was the most expensive private-equity transaction in Australasia. That really was a fantastic result. But it's a one-off. Yellow Pages is gone, and Telecom's earnings outlook is far from fantastic.
The former Government-owned telco faces static or declining revenue from its traditional fixed-line and mobile businesses, but has yet to see new businesses such as broadband pick up the slack.
Its ebitda in New Zealand fell by 3.8 per cent this year and could fall by more than double that next year, the company says. Telecom's new IT services business performed well - but worryingly, broadband and internet revenue fell by 3.3 per cent for the year.
Moutter says this is because the Commerce Commission forced it to charge one low price for wholesaling broadband prices to competitors, effectively halving the price it could charge its own business broadband customers.
Even so, the fact that Telecom was unable to grow broadband revenue before most of the Government's reforms to open up the telco sector to more competition have taken effect raises questions about how it will perform in the new competitive environment.
Regulation will only get tougher - as the Commerce Commission showed this week when it set lower-than-expected draft prices for internet competitors to access Telecom's copper wire network.
And yesterday, the Commerce Commission signalled a tougher stance on the mobile market, saying it would take control of prices for roaming - letting other carriers use Telecom and Vodafone's mobile networks.
Reynolds will have his work cut out when he arrives to take charge of the company next month.
Bad taste
Novice investors probably have a bad taste in their mouths from the Burger Fuel float. Many of them will put money into the sharemarket for the first time by putting $1000 worth of Burger Fuel shares on their credit cards. Now, less than a fortnight after listing for $1 each, the shares are trading at 81c and first-time investors are facing a loss of 20 per cent as their credit card bills become due. After this experience it may be a long time before many of them decide to put money into the market again.
* Christopher Niesche is business editor of the New Zealand Herald
