Shares slip as Telecom silent on its options

By RICHARD BRADDELL

WELLINGTON - Telecom's shares slipped to year lows yesterday as chief executive Theresa Gattung kept restructuring options under wraps when the third-quarter profit was announced.

Dashing expectations that she would elaborate on optionsincluding partial floats of high-growth activities in one or more companies, Ms Gattung said the "reinvention" of the company was still some way off.

She said the fast-evolving market and the capital market gyrations of the past two months made it wise for Telecom to bide its time.

"We have to be careful not to come to any premature conclusions about changing the structure of the company," Ms Gattung said.

Although "lots of work" had been done investigating options, Telecom would not be rushed into anything simply to follow fashion trends.

Ms Gattung said the company would concentrate on the cellular and internet areas, the Southern Cross cable, Australia and the maximising of value through transtasman integration.

Consistent with expectations, Telecom's net third-quarter profit slipped 8.5 per cent to $205 million on the same quarter last year, mainly due to funding costs for its $A1.5 billion takeover of AAPT last year.

But for the AAPT investment, the result would have been 1.8 per cent higher at $222 million.

The first-time consolidation of AAPT into Telecom's accounts had left analysts uncertain about the bottom-line figure.

Forecasts had ranged between $188 million and $212 million.

The actual result, which was described by one analyst as "flat," illustrates Telecom's transition from a high earnings and yield stock to a growth stock based on AAPT's prospects and the development of online world activities centred around the internet, data, cellular and the Southern Cross cable.

Ms Gattung said the Southern Cross cable had already covered its building costs.

A total of $US1 billion is committed to the high-capacity cable, which will link Australia and New Zealand with the United States.

Meanwhile, Telecom is sticking with its traditional yield stock dividend level of 11.5c a share, although Ms Gattung said the size of the dividend was under review because of the company's "fundamental commitment to growth."

Any review of the dividend was likely to be part of a package rather than a standalone, because Telecom would want to explain to the market how it would reinvest the retained profits.

In the result, traditional local and long-distance services experienced only modest revenue growth, and the burgeoning data market showed its colours with 25 per cent revenue growth.

But in spite of signing up an additional 65,000 customers in the last quarter, cellular showed the strain of shrinking margins and price realignments.

Total revenue was up only 5.5 per cent on the same quarter last year.

And for the second quarter in a row, Telecom has been outsold by Vodafone.

The rival company picked up 76,000 customers in the last quarter, possibly helped by aggressive marketing of text messaging services.

Telecom has introduced similar offerings based on its existing digital AMPS network, and is poised to trial wireless application protocol services in the next few months.

But it is looking increasingly dependent on the completion of its new CDMA network in the middle of next year to compete effectively in enhanced cellular services.

Telecom closed down 5c at 823c.