Dividend cuts ahead as Telecom expands

By RICHARD BRADDELL

Telecom aims to position itself as a regional force in burgeoning data and internet markets through its $A444 million ($572 million) bid for the minority shares in Australian subsidiary AAPT.

Chairman Dr Roderick Deane said yesterday that large savings were to be made from integrating the two groups' cellular, internet, international and data businesses, and that the new structure provided considerably more flexibility in creating and developing a regional business.

The announcement comes shortly after Telecom won a prestigious $A500 million ($644 million) telecommunications contract to manage the Commonwealth Bank of Australia's telecommunications requirements.

Dr Deane said Telecom was keen to expand in Australia, but needed the lowest possible cost base and most effective management team to do that.

He said the funding for the $A444 million bid was in place, although it could be funded off Telecom's balance sheet.

He did not expect any downgrading of Telecom's credit rating.

The announcement was made yesterday as Telecom reported an unsurprising and unspectacular $783 million net profit for the year ended June.

At the bottom end of expectations, the result would have come in at $846 million, or 2.5 per cent higher than the previous year, but for funding and other costs relating to AAPT, which is now 82 per cent owned after a $A1.5 billion ($1.9 billion) bid last year.

Dr Deane said Telecom was still "essentially a company in the middle of a major transition" from a network to an online company.

In its efforts to move up the value chain, it would have to seek further partnerships and acquisitions.

But the cash demands of moving to "new world" internet-protocol-based activities has forced a change in dividend policy.

In the coming year, dividends are likely to be 50 per cent of net earnings, or little more than half the 98 per cent in the year just ended. The final quarter dividend is being maintained at 11.5c a share.

Telecom is forecasting current year capital expenditure of $1 billion, up from $643 million in the 2000 year. Included in that is spending on the rollout of its new digital cellular CDMA network, capacity purchases on the Southern Cross cable, and data investment.

Telecom shares closed down 35c yesterday, at 720c.