KEY POINTS:
Telecom has reported a full-year underlying profit drop and is forecasting worse to come, sending its share price to a nine-month low.
New Zealand's largest listed company reported a net profit of $3 billion for the year, but this was boosted by the sale of the Yellow Pages directories business for $2.1 billion.
Adjusted to exclude one-off costs, the company's net earnings were $995 million, 16.5 per cent higher than last year's $820 million.
But the improved profit came from lower tax and lower depreciation charges.
Acting chief executive Simon Moutter described the result as "fantastic" and "stunning".
But the market took a dimmer view, lopping 15c off Telecom's share, taking it to $4.32.
Revenue from Telecom's core high-margin voice calling market was down 0.6 per cent to $962 million - a trend likely to continue as the company comes under increased regulation and competition from rivals.
Adjusted earnings before interest, tax, depreciation and amortisation fell 3.6 per cent throughout the group and 3.8 per cent in New Zealand.
Moutter said there was a "reasonable prospect" of a continuing overall revenue drop in New Zealand.
He said the fourth quarter decline of 6 per cent in the New Zealand ebitda was the best guide for the next financial year.
The Government last year announced sweeping regulatory changes to the telecommunications industry aimed at opening up the market to greater competition and bringing down phone and broadband costs.
"There are high levels of uncertainty on how the wholesale market operates, how competitors will respond, so I think that more than ever we have a wide range of scenarios in our plan and negative revenue growth in New Zealand core business may be a feature of it," said Moutter.
Chief financial officer Marko Bogoievski said competitors were gearing up for local loop unbundling, which would require an aggressive response from Telecom and lead to a fall in revenue.
UBS analyst Richard Eary said the results, particularly the low revenue growth, were disappointing.
He said low fourth quarter revenue growth - up 0.1 per cent on the same quarter last year - raised questions about where growth would come from in the current financial year and beyond.
Laurent Horrut of JPMorgan said although the guidance was worse than the market expected, the company was in a transition stage.
A new direction would be defined by incoming chief executive Paul Reynolds.
Reynolds joins Telecom at the end of next month when he leaves his role as head of British Telecom's wholesale business.
Telecom's New Zealand toll calling revenue, including calls to mobile phones, fell 7.5 per cent to $534 million in the past year.
That was balanced by an 11 per cent lift in international calling revenue.
Income from Telecom's 1.9 million mobile connections grew 5.4 per cent to $816 million, mainly because of increased data revenue.
Mobile voice calling revenue was down 0.8 per cent to $522 million, which Moutter said reflected increased competition.
"Low single-digit growth, we think, should be sustainable in the present environment, and in the mobile business we do think we should be able to maintain our market share pending the wideband CDMA launch," he said.
Telecom said in June it would spend $300 million building a wideband CDMA mobile network to handle mobile calling, video and high-speed broadband.
Fewer than 20 per cent of mobile networks around the world use Telecom's current technology, meaning customers have reduced handset choices and international roaming options.
Telecom's Australian operations have again posted a loss, down $31 million - much less than last year's $85 million fall. The company said competitive conditions there remained "highly challenging", and retail prices were still declining.
Regulator acts
New Zealand's telecommunications regulator is proposing to control the prices charged to access the nation's mobile phone networks because costs are too high and are limiting competition.
Telecommunications Commissioner Ross Patterson said regulating the price of so-called roaming will enhance entry into the New Zealand mobile market. Roaming allows a network operator to roam on other networks to enable its customers to make or receive calls.
The commissioner has been studying a lack of new companies entering the nation's mobile services market, which are dominated by Telecom and Vodafone, the world's largest mobile company.
"New Zealand and Slovakia are the only OECD countries which do not have three or more mobile operators," Patterson said. The proposal "is likely to facilitate new entry, which will lead to more competition, greater choice of provider, lower prices and more innovate products".
Vodafone has about 53 per cent of customers in New Zealand's $2.2 billion mobile market, while Telecom has the remaining 47 per cent.
- Bloomberg
