KEY POINTS:
The economic downturn is not having a big impact on profits, Telecom chief executive Paul Reynolds told analysts yesterday after releasing the company's first-half results.
But the slowdown has complicated an already "complex" market as the struggling telco heads into the deepest part of a three-year transition that began last year.
Telecom faces more uncertainty with the Government's proposal for a $1.5 billion taxpayer backed fibre optic rollout, promoted as providing super-fast broadband to 80 per cent of New Zealand homes.
Reynolds repeated what he has said since he took over in 2007 - that Telecom has a lot on its plate.
That includes a fight with regulators, a new mobile network launch in June, increased competition and large capital expenditure programmes.
Capital spending will amount to $632 million for the first six months, up 52 per cent on last year.
He said that the company was still on target to end the financial year inside its guidance for a 5-8 per cent fall in operating profit.
Reynolds told analysts that $101 million in writedowns - $68 million for its troubled Australian investment in Powertel and $33 million worth of equipment for technology discarded when it opted for a different new mobile phone system - contributed to the 59 per cent fall in net profit.
The effects of the downturn were hard to quantify but accounted for only a $10 million fall in operating profit for the second quarter and up to $20 million for the year, he said.
The new 3G mobile phone network set to launch in June would be a major boost for the company and cost it $160 million in the first half.
But he declined to indicate expected uptake for the new service or estimates on growth. Increasingly the company's future is linked to public policy, to its attempt to slow down regulation and to access taxpayer funding for the broadband fibre optic rollout.
Reynolds shrugged off analyst queries about the rollout which has the potential to make or break the struggling telco.
National gave the rollout a high profile in the run up to the election and Telecom was seen as a likely beneficiary. But the lines company Vector has been pressing to partner the Government, a move that would introduce a new partner providing telecommunications infrastructure.
Reynolds insisted yesterday Telecom has no inside running.
"It's still early days and we are in dialogue with the [Communications] minister [Steven Joyce] over the next few weeks," Reynolds told financial analysts.
"We have a lot of ideas on what we can do and we are very excited to engage in coming weeks," he said.
Reynolds claims that in the first half the company had cut costs with the closure of shopping website Ferrit, saving $1 million a month.
It had reduced retail adverting spending by $4 million and cut consultant costs by 5 per cent.
Further cuts were planned for the third and fourth quarters.
Forsyth Barr telecommunications analyst Guy Hallwright said there were no surprises in the interim report.
He agreed with Reynolds' assessment that the new 3G mobile network, which is set to be launched in June, would have a significant impact.
The technology would enable Telecom to make the claim it held advantages over Vodafone, whose 3G network has 52 per cent of the mobile market to Telecom's 48 per cent.
Telcos are resisting Commerce Commission regulation of the market. They say regulators must recognise the need to earn a solid rate of return on investment in the New Zealand industry.
Reynolds played down tensions over the cost for other players to access its new mobile phone networks.
The charge - which the commission and prospective new mobile player New Zealand Communications says is comparatively high in New Zealand - can be used by incumbent players to limit competition.
Reynolds said the Commerce Commission's decision to review whether it should regulate the charges was "gratuitous" but said there was "nothing personal" in disagreements.
Telecom shares closed down 3c to $2.63 yesterday.
