Telecom pleas for regulation relief

Paul Reynolds says there is a danger investment will be wasted. Photo / Dean Purcell

Telecom is seeking relief from the Government on its regulatory obligations in the face of pressure on earnings.

The company yesterday cut its earnings forecasts for the next three years.

The forecast for earnings before interest and tax and depreciation and amortisation (ebitda) for the financial 2011 year was cut to between $1.72 billion to $1.78 billion. The company previously predicted earnings between $1.82 billion to $1.86 billion.

For the 2012 financial year the company had been predicting ebitda would rise by $70 million to $110 million. This is now predicted to rise between $20 million to $80 million.

For the financial year 2013, ebitda guidance has been cut to a rise of $20 million to $80 million from previous guidance of a rise of between $75 million and $115 million.

The company's share price closed 6c down at $2.18 yesterday, and fell as low as $2.14 after the guidance announcement.

Telecom chief executive Paul Reynolds said a new industry structure would be created out of the Government's $1.5 billion fibre broadband scheme - something that was not anticipated when Telecom were operationally separated two years ago.

"We are heading for a ultra-fast broadband fibre world, yet we are also flat-out delivering an operational separation model designed for a copper world," said Reynolds.

Telecom is currently boosting its copper-based broadband network.

"We are highly focused on creating better alignment between those worlds and working with the Government to do so."

Reynolds said the environment Telecom faced saw government intervention - changes to the Telecommunications Service Obligation, the rural broadband initiative, mobile termination rates plus the roll-out of a Government-backed broadband network - layered on top of an already complex regulatory model.

Asked if the company would be seeking regulatory relief around its operational separation undertakings, Reynolds said there was a "real opportunity to look at reality".

"We are engaged in a massive programme of investment that was designed in 2006/07 in a copper-based world ... .and there is a real danger of pretty much wasted investment and effort."

He said there was an opportunity to re-shape the company's investment in improving its copper-based network in anticipation of the move to fibre.

"We seek a positive and open engagement with government on regulation and in particular getting an alignment with copper regulation with the forthcoming fibre world," Reynolds said.

He said telcos in developed countries were seeing either flat or slightly declining revenues.

"The New Zealand telco market is similar and analysis in this market suggest a decline in total available revenues in the market of about 0.3 per cent between 2009 and 2013," he said.

Reynolds pointed to the impact of the economic slowdown, increased price competition from other telcos, combined with the Government's announced changes to the Telecommunications Service Obligation and the creation of the rural broadband fund, which Telecom previously said would put a dent in earnings by $56 million a year for three years.

The effect of the Government's fibre network plan had not been factored into the downgrade and the guidance assumed Telecom would hang on to its Australian telco business AAPT.

Reynolds said the impact of the broadband plan was "very difficult" to forecast given the range of outcomes was wide.

The commercial deals between the Government-created Crown Fibre Holdings and potential fibre infrastructure builders were likely to be conducted behind closed doors.

Chief financial officer Russ Houlden said the company had not made a "knee-jerk" reaction on its dividend policy and would be updating the market on dividends to be paid beyond the end of this financial year at its investor briefing day at the end of May.