Regulatory uncertainty adds to grim times

Telecom has painted a grim earnings picture for the next four years, forecasting flat earning as regulatory uncertainty hangs over the company.

But the management team offered some hope yesterday, outlining plans to dramatically change its product offerings to offset the gloomy outlook.

Telecom chief financial officer Marko Bogoievski said there was "fundamental uncertainty" in the business, which would remain until the Commerce Commission set the pricing of Telecom's wholesale broadband services and access to its network at the end of the year.

"The parts of the business that are growing strongly are mobile and internet capability, while traditional sources of revenue, including dial-up and internet, are declining."

Telecom chief executive Theresa Gattung said it expected operating earnings to remain flat.

"The profitable voice business is going to shrink under any scenario and we're going to have to invest in lower-margin areas and we always thought there was going to be further regulatory intervention; it was just a question of how much."

The company planned to introduce its own voice-over-internet service to offset the decline.

"This is not a prediction, this just shows the way we're thinking about the business. People can form their own views about which outcome is most likely."

The company expected ebitda (earnings before interest, tax, depreciation and amortisation) would lift only slightly from $2.22 billion to $2.23 billion over the next four years.

While the New Zealand earnings are expected to remain the same - earnings for its Australian operations would possibly drop significantly from now and 2010.

To offset the expected downturn in its business, Telecom launched its new face - "New Generation Telecom" - at the annual results in Wellington yesterday.

It planned to combine calling, mobile and internet services in an all-in price, and catered to different customer groups.

Bogoievski said this would cut costs and create more certainty for customers and the industry as to Telecom's place in the market.

The company believed the new product package offering would grow broadband penetration, lead fixed mobile convergence and transform cost base and change from being based on the telephone system to an internet protocol network.


The phone numbers

Net loss: $435 million.
Divvie: Quarterly cut to 7c from 9.5c. Payout ratio: Cut from 85 per cent to 75 per cent.
AAPT: Writedown $394 million.
Broadband: Customers up 30 per cent to 51,000.
Mobile: Revenue $289 million, up 7.4 per cent.
Calling: Revenue down 6.8 per cent.
Shares: Down 13c to $4.10 yesterday.