Telecom slashes spending as earnings drop

By PETER GRIFFIN

News of reduced net earnings for Telecom in the quarter ended September accompanied a $200 million reduction in its planned capital expenditure for the year.

Chief executive Theresa Gattung said capital expenditure of $1.1 billion was originally planned for the 2002 financial year - but that figure had been cut to $900 million as the telecommunications industry as a whole battened down the hatches.

"We decided that it was prudent to scale back," she said.

"This is the same conclusion that almost every other telco in the world has reached."

The spending cuts would not centre on any one area, but would be spread across Telecom's wireline, internet, wireless, directories and corporate businesses.

Less money would be spent on expanding the operations of Telecom's Australian business, AAPT, but Telecom's $A400 million commitment to the Hutchison 3G venture would be unaffected.

The tightening of spending had already started and first-quarter outgoings were down 42 per cent on the same period last year, at $141 million.

On the mobile front, Telecom was hit by the flat revenue growth plaguing the industry - mobile revenue for the quarter increased just 0.6 per cent on the previous year, to $180 million.

Mobile ebitda (earnings before interest, tax, depreciations and amortisation) was $47 million, down 14.5 per cent for the quarter.

Telecom executives said use of the company's $200 million CDMA network was growing steadily and they expected 120,000 new customers to be connected by June.

That would help to increase flat mobile earnings, with the uptake of data services not available on Telecom's 2G (second generation) mobile network.

The general manager of Telecom Mobile, Mohan Jesudason, said valuable contract customer sign-ups were outstripping prepaid customers and users of Vodafone's rival GSM network had defected to CDMA.

"We're getting a very healthy level of migration from Vodafone - what we call 'win-backs'," he said.

Telecom had almost 1.4 million mobile customers at the end of the quarter.

While clearly keeping a close eye on the competition, Ms Gattung reacted cautiously when asked about the rumoured sale of Clear Communications to Australian telco giant Telstra, Telecom's dominant rival across the Tasman.

"It's not unexpected that Telstra and Clear would potentially come together in New Zealand," she said.

There had been speculation about the sale, speculation that had been rekindled several times before and humorously dubbed "Project Lazarus".

Telecom revealed that it had settled on networking company Alcatel as a preferred partner for developing its all-IP (internet protocol) network in New Zealand and Australia.

The two companies are negotiating the financial details of the network, which would carry voice and data services more efficiently.

Overall, the market greeted Telecom's results warmly, and the company's shares jumped 29c to close last night at $4.89.

"The core New Zealand telephony growth was OK," said ABN Amro analyst Jeremy Simpson.

"Australia, on the revenue front, wasn't too bad, but costs are something they need to keep an eye on over there."