Telecom changes tack as cellular profits soar

By Richard Braddell

WELLINGTON - Telecom's outgoing chief executive, Dr Roderick Deane, contends that a 6.3 per cent rise in June quarter earnings has the underlying sturdiness to underpin future performance.

In his last profit announcement before he hands the reins to Telecom's head of services, Theresa Gattung, Dr Deane went out on a confident note, pointing to factors in the result supporting Telecom's transition from a voice provider to becoming a data and online company.

These include progress in completing the Southern Cross cable that will balloon capacity between Australasia and the United States, introduction of broadband internet services, commitment to roll out a new cellular digital network, and investment in Australia's fast-growing market through its 20 per cent stake in AAPT during the last quarter.

The $202 million profit, for a change near the upper end of market expectations, was up from $190 million in the same quarter of last year.

The quarter stands alone as a transition period taking Telecom from a March to June financial year.

Profit on a normalised basis after adjusting for abnormal items including a $22 million provision against future cost cutting initiatives, was up 4.3 per cent at $199 million.

In keeping with recent results, price cuts of 37 per cent for international and 12 per cent in national calls proved insufficient stimulus to volumes to keep revenue on track.

But cellular again came to the rescue, with additional help coming from data and the internet.

In cellular, connections jumped 37.5 per cent to 677,000 at June 30 (and more than 700,000 now), driving up volumes 29.1 per cent and revenue 19.1 per cent.

But soaring data use, including a 55 per cent rise in the number of ISDN lines and a 73 per cent jump in Xtra internet subscribers to 206,300, provides the key to the future.

At 16.3 per cent growth, Dr Deane indicated that Telecom had barely scratched the surface and was rushing to keep up with demand for data from companies.

Telecom was well advanced in rolling out fibre to 200 central business district sites, and was proceeding apace with its Jetstream branded ADSL high bandwidth internet service with 44 exchanges enabled and 4500 customers connected already.

While expensive for residential customers, Dr Deane anticipated prices would fall over the next two years.

Dr Deane also outlined plans for Telecom to become the carrier of choice for international carriers accessing New Zealand, as well as in the local market.

Excluding possible spectrum purchases and the cost of rolling out its new digital cellular CDMA network, Telecom is forecasting capital expenditure of $730 million in the coming year, with $100 million earmarked for mobile, $100 million for broadband, and $160 million for international.

Much of the international spend will go to installing "points of presence" in Europe and Japan along similar lines to those it has in Australia and the United States that will further extend Telecom's control over its international traffic beyond New Zealand shores.

The dividend is to be maintained at 11.5c a share.

* Telecom chief financial officer Jeff White said he was reassessing his position after he missed out on replacing Dr Deane as chief executive.

The job went to 37-year-old Theresa Gattung, group general manager of services.

"It's time to reassess," Mr White said after a briefing on the company's quarterly result.

Mr White, an American, said that he had been with the company seven years and originally came to New ealand only for a two to three-year stint.

He joined Telecom from the Chicago-based Ameritech, which then owned a quarter of the company. He said he had no plans to rejoin Ameritech.

Mr White said that his family enjoyed living in New Zealand but nearly every year he reassessed his position.

He said he understood that the choice for the top job came down to a straight race between himself and Theresa Gattung and naturally he was disappointed not to have been chosen.