Key Points:

Telecom's new CEO Paul Reynolds has repeatedly asked for patience from the marketplace, but the company's shareholders displayed little of that today following the announcement of the half-year result.

Shares in Telecom slumped 4.4 per cent to a 14-1/2 year low today after a poor second quarter result that was even worse than expectations.

Shares in the company, grappling with a government-enforced separation into three units and under new chief executive Paul Reynolds, fell 18 cents to $3.92.

The company posted a 25 per cent drop in quarterly profit of $172 million and that included $19m dividend from its half owned cable company Southern Cross.

James Lindsay of Tyndall Investment Management said the absolute number was about 3 per cent below consensus but if the Southern Cross dividend was excluded, it was even further below.

Costs were higher than expected, mobile revenues were down and broadband returns were not as good as expected, he said.

Problems at its perennial problem child in Australian had not been fixed as promised.

"Australia was clearly worse than expected," said Mr Lindsay and he noted guidance for Australia had been downgraded by 10 per cent.

Asked if this was a typical clearing of the decks companies indulge in when a new chief executive takes over, Mr Lindsay said: "No. There was a trend even before he came on board that was pretty poor.

"This is pretty bad and he is forecasting next quarter will be worse.

"I think the business trend is just looking weak."

Continued falls in calling and mobile revenue have contributed to Telecom reporting a big tumble in profits this morning.

The telecommunications giant has reported a 12.6 per cent fall in half year net profit, to $397 million.

The result for the six months to the end of December compares with $454m a year earlier, and was achieved on operating revenues up 1.1 per cent to $2.83 billion.

Adjusted net earnings from continuing operations for the half year period were down 2.7 per cent to $397m from $408m for the corresponding period a year ago, Telecom said today.

The decline was due to a 2.3 per cent decrease in earnings before interest, tax, depreciation and amortisation (ebitda) and higher depreciation and amortisation costs, which was partly offset by lower net interest expense.

Telecom chief executive Paul Reynolds said that with the finalisation of the company's undertakings on operational separation now close, its focus was now on the fundamentals of the business.

The company is being forced by the Government to split into three units.

"While in some areas, notably Wholesale and ICT services, we performed well in the past quarter, in other areas new efforts and momentum is required," Dr Reynolds said.

Telecom had made decisions about leadership, structure and focus that would help secure future momentum, based on a focus on customers.

The achievement of regulatory clarity had helped reinforce that focus, Dr Reynolds said.

For the second quarter Telecom reported adjusted net earnings of $172m . For the comparative period in 2006/07, total adjusted net earnings were $258m, or $234m excluding contributions from the Yellow Pages Group, which has been sold.

Dr Reynolds said the quarter had delivered solid performances in some areas.

"Our wholesale business performed well, with a continued focus on business development and growth, as did Gen-i with further customer wins including ACC and the Ministry of Social Development accounts," he said.

Telecom also banked an after tax dividend of $19m from Southern Cross in the quarter, following the $22m after-tax dividend received in the first quarter. A further $10m was to be paid in the third quarter.

But while Telecom had 90,000 mobile connections in the quarter, revenue was weaker, Dr Reynolds said.

"We have the opportunity to increase our share of high-value customers and roaming revenues over time, once our WCDMA mobile network is deployed before the end of this year, and as we bring sophisticated new worldmode mobile devices to market, including Blackberry, and Windows Mobile 6 PDA devices."

Retail broadband connections were weaker for the quarter partly due to aggressive competitor behaviour targeting the consumer customer base.

In Australia the integration of Powertel with AAPT was on track for completion in the third quarter, he said.

But the migration of retail customers to the company's customer service platform had been experiencing a higher than expected level of calls to call centres, causing delays in the migration plan.

The soundness of the platform was not in question, but the delays meant it would take longer to shut down legacy platforms and realise migration cost benefits, Dr Reynolds said.

In this country half year operating revenue was down 2.9 per cent to $2.1b. Operating revenues increased for data revenue, broadband and internet and IT services. But revenues for interconnection, mobile and calling fell. Local service revenue was flat, Telecom said.

Total local service revenue was down 0.6 per cent to $520m, reflecting the migration of customers from retail to wholesale and also customers using other technologies, including mobile.

Residential access lines declined to 1.397m from 1.404m.

National call revenue was down 9.9 per cent to $247m, with international revenue down 12.9 per cent to $175m.

Total calling revenue was down 11.2 per cent to $443m, Telecom said.

While mobile connection growth continued, declines in revenue reflected intense price competition and competitor activity.

Total mobile revenues dropped 3.1 per cent to $400m, with voice revenues down 3.4 per cent to $253m and data revenue up 5.6 per cent to $114m.

Total connections at December 31 were 2,115,000, having grown over the 12 months by 244,000, with 90,000 net connections for the second quarter.

Total monthly average revenue per user (arpu), including interconnection, was $38.60 for the quarter.

Total data revenue grew by 3.8 per cent to $216m, with decreases in traditional data services partly offset by an increase in managed IP data services where revenue increased by 12.8 per cent to $97m, Telecom said.

Total broadband revenue was up 5.8 per cent to $145m.

For Telecom Wholesale increases in wholesale access lines reflected competitors actively targeting residential customers with bundled access and broadband plans.

Access revenue was up 48.6 per cent to $55m, data revenue was up 3.8 per cent to $27m, and broadband revenue was up 38.1 per cent to $29m.

Total IT revenue was up 9.4 per cent to $198, reflecting revenue from new key contracts and the company's procurement business, Telecom said.

For the Australian business operating revenues were up 9.9 per cent to A$632m ($725m), ebitda was up 270 per cent to A$37m, while the loss from operations was A$21m.

Telecom is to pay a fully imputed ordinary dividend for the quarter to December 31 of 7 cents per share.

- NZPA