Outage may spoil party for Telecom

Paul Reynolds will face questions over the latest XT mobile failure. Photo / Steven McNicholl

Telecom reports its first-half results tomorrow as the gloss comes off the new XT mobile network after two serious failures in as many months.

First NZ Capital analyst Greg Main said Telecom had targeted 9 per cent mobile revenue growth for the year on the back of its new network and had identified regaining market share in mobile as a driver in its earnings turnaround. He said the big issue was that the network outages may see corporate customers stick with the old mobile network for longer, or switch to Vodafone.

Main said there was also a risk Telecom may have to spend additional money sorting out the network problems, as well as needing to spend on incentives to lure customers to the network.

Also tomorrow, 2degrees is set to give a progress report on customer numbers since its launch last August. Although a private company with the majority stake held by US-based telco investors Trilogy International, 2degrees said "continual and sustained interest in our progress from media and the general public alike" meant it would share some information on its first six months of operation.

Figures released for Vodafone New Zealand by its global parent last Friday show it added 9000 customers in the quarter ending December 31. This is a significant bounce-back from the previous quarter where 27,000 customers left the network but still leaves it 18,000 customers shy of the 2.5 million connected to the Vodafone network at the end of June last year.

In a research note published on Monday, Main is forecasting Telecom's second quarter revenues to come in at $1.34 billion, down 5.1 per cent on the previous year, with earnings before interest, tax, depreciation and amortisation (ebitda) down 1 per cent to $414 million and net profit after tax of $78 million. He said those forecasts did not include any dividend from Telecom's stake in the Southern Cross cable.

This week SingTel reported its third quarter earnings which included $11 million from its share in Southern Cross on the back of higher profits and lower depreciation. Main said Telecom's stake in Southern Cross could be worth $9 million over the same period.

Deutsche Bank's Australian-based analyst Sameer Chopra last month downgraded its forecasts for Telecom.

Deutsche Bank has cut its forecasts for 2011 to 2013 full-year net profit by 15 per cent, citing pressure on fixed-line revenues and proposed changes by the Government to the telecommunications service obligation (TSO) which could see it axed. Under the regime, Telecom receives between $20 million and $25 million in subsidies from other telcos to help provide basic phone and internet services to hard-to-reach customers.

Chopra now expects net profit for the current financial year to be $386 million - 6 per cent lower than the consensus average of $412 million across all analysts and below the guidance range of $400 to $440 million given by Telecom.

Telecom shares closed up 1c yesterday at $2.29.