Telecom set for big hit on Aussie asset

Telecom's underperforming Australian unit AAPT is expected to weigh on its first half result this week, with the prospect of regulatory pressure adding to the company's woes.

Telecom has said it will cut the A$1.4 billion (NZ$1.05 billion) book value of its Australian business, which includes third-ranked AAPT, to either A$600 million or A$700 million.

Sydney-based telecommunications analyst Paul Budde said even that value might prove too optimistic and that a figure between A$300 million and A$400 million could prove closer to the mark.

Telecom paid $2.2 billion for the Australian business in 1999 and 2000. It will release the final valuation at its half-year results on Thursday.

Macquarie Equities Telecom analyst Steve Hodgson expects a net profit after tax of $388 million for the half year to December 31, down from $391 million in the same period a year earlier, driven by a decline in AAPT's earnings.

Budde said political pressure was clearly on the New Zealand Government to do something about Telecom's wholesale pricing and the unbundling of local loop services.

Telecom is one of the few incumbents that does not have the proper wholesale regime for all the market's players and that is hampering competition, Budde said.

Telecom will start to make some clear indications about how they are going to handle this regulatory pressure and that will, of course, have an enormous impact on its future earnings, he said.

- HERALD ON SUNDAY