Market shuns upbeat views

By RICHARD BRADDELL

Telecom's growth story in Australia was ignored by investors yesterday after the company turned in a 29.4 per cent drop in December quarter earnings.

The stock closed down another 12c at $5.20 after revealing a net profit of $139 million for the quarter.

This was in the lower half of analysts' forecasts, which ranged from $128 million to $169 million.

Half-year earnings of $330 million were down 26.1 per cent on the $406 million previously.

In keeping with its revised policy of retaining earnings to pay for growth, Telecom is paying 5c a share in dividends, equal to 63 per cent of December quarter earnings.

The market's reaction contrasted with an upbeat assessment of the company's prospects from chief executive Theresa Gattung, who said a pre-Christmas restructuring had put Telecom in a position to maximise its prospects.

"What we've chosen to embark on is a growth plan which involves significant investment both in New Zealand in areas that are uncertain in terms of timeframe delivery and in Australia," she said.

"The levers, the value drivers, are in place for financial performance to come through in later periods."

In the first tangible evidence of its Southern Cross cable investment bearing fruit, Telecom is expecting an initial $US100 million ($234 million) dividend this year.

It also claims to have arrested the erosion of mobile market share to Vodafone with a record 120,000 connections in the December quarter, taking the total to 1.15 million.

Ms Gattung said Telecom's top priorities were cost control in New Zealand, to expand its mobile and data businesses, and growth generally in Australia.

"Our total results for some time are going to be held back by the cost of AAPT [Telecom's wholly-owned Australian subsidiary]," she said.

But while Ms Gattung was tight-lipped about Telecom's bid for mobile assets that have come available in the sale of Cable & Wireless Optus, an official from Australia's competition authority, the ACCC, confirmed yesterday that Telecom's proposal would be considered over the next two weeks.

He said that particular attention would be given to the potential ownership of Cable & Wireless Optus' non-mobile assets, which would be divested by Telecom.

Eighteen months ago, Optus was blocked by the ACCC from taking over AAPT because of the substantial lessening of competition that would arise from the concentration of data and business operations.

Ms Gattung said that a deal announced with Sky Television to extend a one-year trial of bundled telephony and television packages in a two-year commercial launch was unrelated to TelstraSaturn offering similar bundles.

"The whole world is moving in the area of convergence between telephony and entertainment packages and we've had this in our sights for many years," Ms Gattung observed.

She also said it was not a foregone conclusion that recent residential price cuts, aimed at fending off the competition from TelstraSaturn, would necessarily lead to reduced revenue.

Instead, Telecom would seek to preserve its revenue by offering improved packages at the same or better prices.

"There is a range of possible outcomes."