Telecom chases new customers to replace fixed-line profits

Telecom may post a drop in first-quarter profit as it spends more to lure internet and mobile customers to counter a sales decline at its fixed-line unit.

Net income was probably $197 million in the three months ended September 30, according to a median estimate of nine analysts surveyed by Bloomberg. They said the Wellington-based company's profit a year earlier of $193 million might be restated, adding about $17 million, to comply with International Financial Reporting Standards.

Telecom chief executive Theresa Gattung, who has said profit may drop this year, is investing more in businesses with the fastest sales growth, such as mobile, to make up for a decline at its biggest unit, fixed-line calls. The company has also considered offers for its AAPT fixed-line unit in Australia, where sales are sliding.

"The costs are still coming, but we haven't seen the revenue rising as yet," said Craig Brown, at Walker Capital Management. "There's probably more negative than positive earnings pressure on them at the moment."

Telecom's shares dropped 6c to end the day at $5.77. The stock has dropped 6.2 per cent this year, lagging behind a 7.6 per cent gain in the NZX-50 Index.

Telecom's profit margin before interest, tax, depreciation and amortisation probably fell to 47.6 per cent in the first quarter, from 49.3 per cent in the fourth quarter as rising costs outstrip revenue, UBS AG said in an October 27 report.

- BLOOMBERG