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Telecom lifts 1Q underlying earnings on tight cost controls; no word on UFB

Friday 5th November 2010

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Telecom lifted first-quarter underlying earnings as it continued to clamp-down on costs amid an ongoing decline in fixed-line revenue.  

Earnings before interest, taxation, depreciation and amortisation rose 3.6% to $463 million in the three months ended Sept 30, the Auckland-based company said in a statement, as it squeezed a further 4% from its operating costs. Net profit sank 37% to $103 million, or 5 cents per share, as the phone company faced a bigger tax bill than it did in the 2010 quarter.

“The rate of fixed access line loss and fixed to mobile substitution remains somewhat less in New Zealand than many overseas countries,” chief executive Paul Reynolds said. “Growth in services such as mobile, broadband and ICT is only partially offsetting declines in traditional fixed line and voice services.”

Telecom said it was still in talks with government officials over the planned $1.35 billion fund to roll-out high-speed internet through the main centres of the country. The company’s ambitions to win taxpayer funds to provide broadband on a national basis took a dent when it missed out on being named a priority party in the first announcement of fibre companies partnering with the government.

Under its new dividend policy, Telecom slashed its return to 3.5 cents a share from 6 cents a share a year ago, with adjusted net profit tumbling by almost half to $83 million when the company stripped out the $20 million gain from the sale of some of its Australian units.

The shares rose 2.4% to $2.11 in trading yesterday, and have dropped 18% this year.

The company’s troubled XT network, which cost it about $15 million in compensation to its customers in the past year, added 127,000 customers on the service, which now makes up just under 40% of its total mobile base.

Reynolds said Telecom faced an extra $16 million in regulatory costs with the changes to the Telecommunications Service Obligation, where the company is subsidised by rivals to provide phone services to isolated customers.

Telecom Wholesale was the worst performing unit for the phone company in the period with EBITDA down 14% to $37 million as it spent more on acquiring services from Telecom’s Chorus unit.

New chief financial officer Nick Olson said the company will switch to reporting on a six-monthly basis in a bid to cut costs, though it will still pay quarterly dividends.

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