Telecom's third-quarter profit of $160m much as predicted

By RICHARD BRADDEL

Strategic alliances with Microsoft and Australian carrier Hutchison stole the show yesterday as Telecom unveiled a third-quarter profit much in line with expectations.

The stock firmed 25c to $6.25 on the back of third-quarter net earnings of $386 million, boosted by a net $221 million dividend from Telecom's half-owned Southern Cross Cable.

At $160 million excluding Southern Cross, the profit was comfortably within a widening range of expectations, this time between $140 million and $170 million, as analysts find forecasting Telecom's profit an increasingly dark art.

But an alliance with Microsoft, which involves combining Telecom's Xtra internet service with Microsoft New Zealand's MSN service, was received with approval, while an agreement to form a third-generation mobile joint venture with Hutchison Australia won a cautious welcome because of the global relationshipsit would bring to Telecom.

In a significant vote of confidence, Microsoft is also subscribing to $300 million in Telecom convertible notes yielding 5.4 per cent. While they can be converted to equity at any time, they must be redeemed for either shares or cash after seven years.

Telecom is maintaining the same 5cps fully imputed dividend rate of the last two quarters, but it may adjust that rate in the final quarter.

An analyst said the result contained no real surprises, although data revenue growth of 13.3 per cent to $307 million was weaker than he would have liked.

Nevertheless, mobile subscriber growth of 118,000 customers to 1.27 million was creditable, even if eclipsed by Vodafone's 136,000 net customer gain over the quarter.

Telecom is regarded as holding back on promotion ahead of its CDMA network launch in June.