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Telecom investors are guarded about the company's change of strategy in Australia given its history of failure across the Tasman.
In a dramatic shift for the company, Telecom made a A$357 million ($400 million) bid for network company PowerTel last month.
Before adopting the strategy of acquiring businesses in Australia, Telecom had tried to sell its struggling Australian retail arm AAPT. The company purchased AAPT for $2.2 billion in 1999 but after a series of writedowns, values it at just $270 million.
Analysts predict that Telecom will also use some of the proceeds from last week's sale of its Yellow Pages business to spend A$300 million to retain its 19.9 per cent stake in Hutchison Telecommunications Australia's 3G business.
Hutchison Telecommunications is undergoing a capital raising, which would see Telecom's stake diluted if it did not participate.
AMP head of equities Guy Eliffe said Telecom's foray into Australia has "got to be proven".
"Investors are understandably pretty unconvinced and it is up to Telecom to execute the strategy and convince investors that they are creating value."
Tower NZ equities manager Wayne Stechman said Telecom had a history of poor investment in Australia.
The sale of Telecom's Yellow Pages directories business for $2.24 billion was going to "spit out" high volumes of cash.
"We need to see that any part of it which doesn't come back to shareholders is being invested wisely, and there is a clear, sensible strategy that gives a satisfactory return otherwise it is value destroying ... Given their history in Australia, that is one area we are particularly guarded about."
Some observers believe Telecom does not have a clear mobile strategy in Australia.
Telstra decided to decommission its CDMA network last year which left Telecom the sole provider of the cellular technology in the region, and customers travelling to Australia were left without adequate roaming options.
But investors believe Telecom gave a strong signal at an investment day in Sydney last month that it was looking to move from its CDMA network to global positioning network.
Eliffe said the costs for the network transition would be materially less than the $500 million the market had been expecting.
Telecommunications analyst Paul Budde said the initial decision by Telecom to purchase AAPT was sound, but its execution of its strategy was totally wrong.
"If you look beyond the current problems at home, the company will have to position itself into a growth market, and that is what it is doing with PowerTel, which is an infrastructure-based company, like Telecom, and so they are a good match."
But Budde said any more investment in Australia, at the expense of the network in New Zealand, would not be wise.
Telecom has not yet revealed how it will use the proceeds of its Yellow Pages sale, but has said some will be returned to shareholders.
Internet New Zealand president Colin Jackson said that for Telecom to deliver world-class broadband it would need to roll out fibre to the home for between $4 billion and $8 billion.
"Telecom's record in Australia has been poor. They have lost billions of dollars of capital in that market," he said.
"The New Zealand market is crying out for investment to start catching up."
Phone Numbers
* $2.24 billion - proceeds from Yellow Pages sale.
* A$357 million - cost of planned PowerTel takeover
* A$300 million - cost to recapitalise Hutchison Telecommunications
