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Telecom Corp of New Zealand Ltd. is set to post a fall in first-quarter net profit as its government-enforced split looms, due to increased competition at its fixed line unit and tighter margins.
Its results on Friday will be closely watched for signs of how quickly new chief executive Paul Reynolds is taking control and steering the former state-owned monopoly.
Telecom has been ordered by the government to open up its network to competitors and split into three separate operating units.
"For the company right now it's all about stability and trying to deliver on some of those promises they've made to the government," Goldman Sachs JBWere analyst Tristan Joll said.
On Oct 26 Telecom said it would speed up putting the government-ordered split into place, and pledged to spend $1.4 billion over five years to upgrade its fixed line phone network.
Telecom, which competes with Australia's Telstra , British mobile phone company Vodafone , is expected to report a net profit after tax of $183 million for the first quarter ended September 30, compared with $224 million a year ago, according to six analysts polled by Reuters.
The 2006 profit included a one-off $20 million gain from an asset sale, as well as roughly a $30 million contribution from Telecom's directories arm, which it sold for $2.24 billion in March.
Telecom returned $1.1 billion to shareholders in early October, but having the funds on the balance sheet during the first quarter lowered interest costs, analysts said.
Shares in Telecom, New Zealand's largest listed company, fell 2.6 per cent during the quarter, compared with a 0.8 per cent rise in the benchmark top 50 index .
Earnings before interest, tax, depreciation and amortisation (ebitda) for the first quarter are forecast to be $464 million, down from $545 million last year.
The lower ebitda reflects persistent pressure on Telecom's fixed line unit from rising competition, as well as slowing growth in mobile phone income.
In August Telecom said 2007/08 profit would be between $680 million and $720 million, compared with $855 million in 2006/07 and previous market expectations of $755 million for 2007/08.
Telecom has cautioned that its earnings outlook is uncertain, as the competition watchdog has yet to determine pricing for wholesale services and access to Telecom's network.
The quarterly briefing will be former BT Group executive Reynolds' second public appearance after taking up the chief executive post in early October, and Joll said the market will be interested in any comment Reynolds makes about strategy.
- REUTERS
