KEY POINTS:
Telecom is sticking to its forecast of a 5-8 per cent decline in operating profits to June 30, 2009, despite the global financial crisis and predictions for upheavals in the year ahead.
The company yesterday reported its first quarter results to September 30, which showed that while total
revenue rose 2.3 per cent compared with a year earlier, net earnings were down 33.8 per cent to $149 million.
Telecom acknowledged signs of an economic slowdown.
They include lower foot traffic in stores and diminished calls to its services, such as 0800 numbers, and a customer focus on price. But the company said that bad debts this quarter were the same as for 2006.
And chief executive Paul Reynolds said the impact was "modest" and shouldn't hurt Telecom plans for a turnaround in the 2010 financial year.
Telecom told analysts that telecommunications companies were in a good position to maintain revenue.
But at an investment level, Reynolds said that the global economic upheavals had an impact. Combined with price controls that means a poor return from assets, making it hard to attract investors.
He said that some regulated prices - such as a 6.5 per cent return from its obligations to rural customers which Telecom is challenging by judicial review - were derisory.
The Telecom share price is wallowing at $2.26, down 1c yesterday. The price has slumped with the rest of the market but was falling prior to the meltdown of the past few weeks amid concerns about Telecom's heavy capital expenditure and its newly regulated market.
Reynolds said: "Telecom has a fantastic record, but there is also a credit crunch and people are looking at investments like never before."
After leading Telecom into its new regulated role, Reynolds has baulked at regulations and the level of returns applied to price controls on what it can charge its competitors.
Quarterly results estimated that returns from its networks division amounted to 8 per cent.
"Prices of regulated services need to reflect the costs and give shareholders a return - they need to earn more than what they can earn from the bank. This is going to be an important issue for whoever wins the elections," Reynolds said.
Elsewhere Reynolds revealed results for broadband and mobile phones.
Telecom reported that overall, broadband connections in New Zealand were up by 20 per cent but with the increased competition - some of which were offering attractive discounted services - Telecom has not increased its subscriptions.
Reynolds said that there would be a marketing push for the services.
"Some competitors have been going gangbusters with deals that were not going to make any money," he said.
He said that the commitment to the new Telecom WCDMA 3G phone network - which allows for easier internet and interactive services and which is to be widely available in May or June - would help the company increase its share of the market and overcame poor revenue from users.
He said the absence of the network for Christmas retail sales could be balanced by deals to contract customers.
But one financial analyst noted that Telecom rivals like Vodafone would be heavily marketing established 3G services in the intervening six months.
One of the largest falls in operating profits was for Australian division AAPT, down 24 per cent. Telecom said it was due to lower revenues and set up costs, with moving call centres to Australia, and marketing costs.
Forsyth Barr telecommunications analyst Guy Hallwright said that the AAPT result decline was "a little higher" than expected.
DIVISIONS
* Chorus (networks): Operating profit down 8%.
* Retail: Operating profit down 4%
* Technology division (Gen i): Down 4%
* AAPT (Australian arm): Down 24%
