KEY POINTS:
ABN Amro analysts have written a withering critique of Telecom's future and predict it will cut its interim dividend at a briefing for investors next month.
Investor are hoping the Sydney briefing on April 10 will provide ideas on the new direction of Telecom after months of upheaval
caused by restructuring and unbundling of the local loop.
Analysts have likened waiting for the new look Telecom to the Samuel Beckett play Waiting for Godot.
"Our concern is that after Telecom's strategy day it may still not be clear where value may arise," said analysts Ian Martin and Geoff Zame.
Telecom is about to sign an agreement with the Government for new responsibilities now it is to restructured into three divisions - retail, wholesale and networks.
But ABN Amro Equities pointed to questions marks for the future including what it said was its "disorganised" transition to a new mobile phone network.
Telecom faced new competition for fixed line services as a result of local line unbundling while being led by new chief executive Paul Reynolds and no chief financial officer had been appointed to replace Marko Bogoievski.
In a note this week the ABN Amro analysts said they expected Telecom to announce a reduced interim dividend - from 7c per share to 6c - at the April briefing.
The analysts concluded that things would get worse before they got better - an outlook made by Reynolds in Telecom's half-year results - and pointed to local line unbundling that allowed other companies to access copper wires linking exchanges direct to homes. So far, state-owned Orcon is the only company to set up an alternative network but Vodafone is expected to follow.
ABN Amro has reduced its forecasts for earnings for the 2009 financial year by 1.5 per cent due to erosion of the fixed line business and reduced expectations for Telecom's Australian business.
This was mainly due to low margins in Australia for information technology business Gen-i.
The note questioned the degree that the Gen-i Australian operation was run from New Zealand - an issue which is understood to have been the subject of debate within Gen-i at a meeting last week. ABN Amro increased the expected burden for capital expenditure by $88 million to $1.052 billion because of the increased cost of its cabinetisation programme - improving access points to homes and broadband speeds by swapping from centralised exchanges to roadside cabinets.
Telecom's position in the New Zealand mobile market continued to deteriorate.
The risk was that it may not recover sufficiently to defend its position in mobile before a third player was established.
"Fortunately for Telecom the prospective third operator - New Zealand Communications - looked more disorganised in establishing a mobile business than Telecom was in its transition from its own network to the [new] format."
Telecom shares closed down 10c at $3.82 on Thursday.