Telecom has boosted its forecast mobile capital expenditure for the next two years by $391 million as it rolls out a new network.
But as spending rises the company's forecast bottom line is down and today's announcement was unenthusiastically received by the market. By mid-afternoon Telecom's share price was down 15c, or 5.8 per cent, to $2.43.
In its announcement today Telecom said the new network would "transform New Zealand's mobile landscape by June 2009".
The wideband CDMA technology, using a frequency of 850MHz (megahertz) , would have a phased launch from November with the start of inbound roaming services, as well as a pilot programme.
There would be a full launch of services by June.
Telecom said it would be investing a total of $574 million in a nationwide rollout of the new mobile network.
Chief executive Paul Reynolds said the technology was smart for this country's geography.
Wideband CDMA at 850MHz reached further than higher frequencies, he said.
"It means crucially we need fewer base stations to provide nationwide coverage. That's why it's the smart choice.
"It also penetrates further into buildings. It will give much better in-building coverage than comparable technologies."
Previously Telecom had announced its mobile capital expenditure would be $161m in the current financial year and $22m the following year. That has now been increased by $218m this year and $173m the next.
Guidance provided today predicted normalised Telecom Group net profit after tax (Npat) of $460m to $500m for the current financial year. In the annual report it had expected Npat of $500m to $540m.
Today's presentation also expected depreciation and amortisation of around $900m to $950m, while previously the guidance was $870m to $920m.
Telecom today said that overall it now anticipated spending $2.4 billion on capital expenditure during the next two financial years.
The company said the business case for the new W850 network was "compelling". It was expecting increased mobile revenues and more efficiency.
"Telecom's new mobile network will be superior on every level: the best nationwide coverage, the fastest internet on your mobile, a wide range of world-leading handsets, as well as better content, music and business applications," said Reynolds.
The technology would extend 3G service and fast mobile broadband to 97 per cent of New Zealanders, about a year in advance of Telecom's main competitor's plans, Telecom said.
Chief financial officer Russ Houlden said Telecom was ahead of the game in terms of financing for the extra spending.
The company had an $800m standby facility, which was available but would probably not be needed.
All funding requirements for this year had also been completed by August, before the big escalation of the credit crunch, with $400m raised between June and August. In addition Telecom would be reintroducing a discounted dividend reinvestment plan.