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Reynolds confirms 200 jobs to go at Telecom, says XT numbers still rising

Thursday 15th April 2010

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Telecom’s chief Paul Reynolds confirmed the company will look to sack as many as 200 managers this year, with potentially more  in coming years, as it seeks to claw back costs amid a softer earnings outlook.  

The country’s largest phone company said increased price competition in mobile, voice and data products, along with the government’s proposals to change the Telecommunications Service Obligation, where Telecom has been able to leverage cash from its rivals to provide essential phone services to hard-to-reach customers, forced it to downgrade its forecast for the next three financial years. As a consequence, the company was putting more emphasis on its so-called cost-out programme, where it’s seeking to cut $524 million of spending over a three year period.  

“200 is an initial number,” Reynolds told a media and investment briefing. “We anticipate increased focus on further reductions over the planned period.” 

James Lindsay, who helps manage $450 million at Tyndall Investment Management, said he "wouldn't get too excited about the job cuts - that's a continual process. I don't think there's necessarily any great headline there other than it is management rather than front line staff.”  

Reynolds was more upbeat in flagging more customer gains in the problematic XT mobile network, which has gained 128,000 customers to 585,000 as at March 31, though total mobile customers were down with “low value CDMA” customers leaving the phone company.  

He said the tension between the company’s forced operational separation for its copper wire network didn’t align well with the government’s plan to roll out fibre as part of its $1.5 billion ultra-fast broadband plan, and that he was working with regulators to try and find the best way forward for both parties.

Reynolds said he expects the copper network will “be around for a very long time” with its ability to deliver speeds of up to 40 megabits a second.  Reynolds confirmed Telecom was still open to offers from prospective buyers for its Australian unit AAPT in a full or partial sale.

Telecom now expects to make an EBITDA of between $1.72 billion and $1.78 billion in 2011, down from between $1.82 billion and $1.855 billion. In 2012, it cuts it EBITDA forecast to between +$20 million to +$80 million, compared to a previous range of +$70 million to +$110 million. The projection for 2013 was reduced to a range of +$20 million to +$80 million from +$75 million to +$115 million.  

Tyndall’s Lindsay said Telecom’s reduced guidance “brings it into line with our own and most other forecasts.” Telecom is currently “very, very difficult to analyse but there is potential for it to continue to get bad news with fibre to the home. There are a number of downside risks.” 

The shares slumped 2.7% to $2.18 after the company downgraded its earnings before interest taxation, depreciation and amortisation over the next three financial years.

The country’s largest phone company kept its forecast for capital expenditure this year to between $1.1 billion to $1.2 billion, and flagged new capital expenditure of between $1 billion and $1.1 billion in 2011, a figure that hadn’t previously been provided. 

It kept its guidance for this financial year, though this has already been downgraded twice due to problems with the company’s XT mobile network, and the government’s, with net earnings expected to be in the bottom end of the range between $400 million and $440 million.  

The guidance assumes AAPT, the company’s struggling Australian unit, won’t be sold, and that there won’t be any impact from the government’s $1.5 billion subsidy to the roll-out of fibre in the main centres of the country.

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