Telecom delivers higher payout

By PETER GRIFFIN, telecoms writer

Kiwis may not have noticed yet, but we are in the "year of broadband", according to Telecom chief executive Theresa Gattung, who is beginning to enjoy the golden run she has craved for so long.

Telecom's management team beamed confidence as it delivered news of a $365 million interim profit and a long-anticipated dividend lift.

After paying a 5c a share dividend for the second quarter, Telecom yesterday promised dividends of 7.5c a share for the third and fourth quarters.

The conservative payout policy of 50 per cent of net profit would also be raised next financial year to 70 per cent.

The dividend increase and profit were widely forecast in analyst reports, explaining why Telecom's share price closed just 1c up last night at $5.54.

Gattung is using Telecom's stronger balance sheet and greater regulatory certainty to prepare for this year's area of focus - the broadband market.

The solid half-year result, up 21 per cent on the previous corresponding period, was buoyed by a $28 million part-payment from the sale of Telecom's 12 per cent stake in Sky Television.

The rest of the story remains largely the same. Telecom's traditional wireline business is providing the lion's share of revenue but is supplying minimal growth and is under attack from competitors.

Operating revenue crept up 1.5 per cent for the half year to nearly $2.65 billion and the broadband, mobile data and IT services business - the real future earners for Telecom - showed high growth from small bases.

Data, internet and solutions revenue picked up 15.3 per cent to $339 million, with a 100 per cent jump in private, office and high-speed data services.

New Zealand earnings from operations for the half rose 4 per cent to $785 million, with operating revenue up 3 per cent.

Telecom's mobile revenue grew 8 per cent to $333 million and its mobile data revenue jumped 75 per cent.

Some 90,000 Telecom customers now subscribe to Jetstream, up from 54,000 a year ago. The rate of converts from dial-up internet to broadband had "doubled".

Gattung promised an emphasis on broadband take-up this year, which she said was important to growing gross domestic product.

On the shock decision by the Commerce Commission to back-track on its recommendation to unbundle Telecom's "local loop" network, Gattung expressed little surprise.

"For a long time [telecommunications commissioner Douglas Webb] made public comments about there not being evidence recommending unbundling," she said, adding that TelstraClear and the Telecommunications Users Group were the only key advocates of unbund-ling.

"Most of the submissions were against the draft, most of the presenters [at the unbundling conference] were against the draft," she said.

The turnaround, still to be ruled on by the Government, has pleased analysts.

Forsyth Barr described it as an "unexpectedly good Christmas present for Telecom" and said " ... a driver of the recent rally has been an unwinding of some of the concerns about the shape of future regulation, in particular around local loop unbundling".

On an annual basis, regulation has so far knocked $30 million from Telecom's bottom line. The number of access lines wholesaled from Telecom has doubled to 20,000.

Regulation would chip away at revenue, forcing Telecom to compensate with revenue from its fledgling high-growth divisions.

"It's part of why we've this push on in terms of new areas," said Gattung.

"We're not just sitting here as a target for competitors. We're trying to shift the business."

Gattung said wireless broadband provider Woosh Wireless posed a "significant challenge" if it successfully launched its voice service and expanded calling regions as signalled.

Telecom had cut debt by $902 million in 2003 to $4.1 billion. It was cancelling the discount for the dividend reinvestment scheme

"Given our sturdy cashflow ... we do not believe it is warranted any more," said chairman Roderick Deane.

There was "potential scope for further increases" in the dividend, but there would be no return to the 90 per cent and above payout rates of the 1990s.

Telecom's Australian operation AAPT was treading water, but generating $100 million of positive cashflow, and was no particular cause for concern.

"Strategically the business part of our operation in Australia is very important," said Gattung.