Mobile war update on telco agenda

Richard Hammond appeared in Telecom's ad for the XT Network.

How Telecom's XT mobile network is faring against rival Vodafone and new player 2degrees is expected to be revealed at Telecom's full-year results briefing this week.

While the XT network began operations just weeks before the end of Telecom's financial year and is therefore not likely to make much impact on revenue figures to be released on Friday, Telecom is expected to provide a progress update.

A report from the Organisation for Economic Co-operation and Development (OECD) said revenue from mobile phones now accounted for a 41 per cent of total telecommunications sector turnover in the countries it covers.

The OECD also said the decline in revenue from traditional phone lines had been partly offset by the growth in consumers taking up high-speed broadband offers over fixed-line networks.

ABN Amro Craigs analyst Geoff Zame last week painted a similar picture for Telecom.

"We expect revenue trends in 2010 to be broadly consistent with 2009 in that growth in new wave revenues [mobile, broadband, data] are still insufficient to offset declines in higher-margin legacy PSTN [public switched telephone network] revenues."

In a research note released at the end of May, Zame contrasted Telstra's NextG mobile network performance - it switched mobile technologies from CDMA three years ago - with that of Telecom.

He noted Telstra derives 34 per cent of its revenue from its mobile network to Telecom's 21 per cent. Zame said Telstra had achieved particularly strong revenue growth for its mobile data products compared with Telecom.

He was cautious about forecasting such strong data growth for Telecom on its new network in this economic climate and with Telstra's "first-mover advantage" with 3G in Australia.

Zame predicts 2degrees will snare 2 per cent of the mobile market in its first year of operation with 75 per cent coming from Vodafone because of the ease of switching networks.

JPMorgan analyst Laurent Horrut is looking for an update on talks with Apple over the iPhone. At the network launch in May, retail head Alan Gourdie spoke of "deep discussions" with Apple regarding the availability of the iPhone through Telecom.

Although the iPhone works on the XT network, it can be bought only from Apple's online store or on contract with Vodafone.

Vodafone does not release any sales figures for iPhones, but it is understood the telco's stocks of the latest 3G S have been replenished several times since it went on sale in early July.

Other likely topics of discussion are an update on talks with the Government on its planned high-speed broadband roll-out and what impact the economic downturn may have on profit forecasts.

Financially speaking, Telecom is this week predicted to unveil a tough quarter, according to Zame.

He expects a steep fourth-quarter operating decline of 13.2 per cent, which adjusted for the previously announced $34 million Southern Cross dividend comes to a 6.7 per cent decline.

Zame said a result of this order would translate into a decline in full-year earnings before interest, tax, depreciation and amortisation (ebitda) of 5.6 per cent - comfortably within the company's guidance range of 5 to 8 per cent.

JPMorgan analyst Laurent Horrut forecasts a similar ebitda decline for the quarter at 6.5 per cent, again in line with guidance given by the company at an analyst briefing in May.

Horrut also expects net profit after tax to hit the company's guidance targets of $460 million to $500 million, compared with $710 million last year.

Telecom shares closed at $2.75 on Friday.