Gattung comes out swinging at results briefing

By PETER GRIFFIN telecoms writer

Telecom has warned it may curb investment in its network by at least $100 million if regulatory decisions from the Commerce Commission continue to go against it.

A defensive Theresa Gattung, Telecom's chief executive, used yesterday's first-quarter earnings briefing to attack the commission's first decision on network interconnect pricing, take a swipe at rival Telstra and quell speculation she is close to losing her job.

Telecom has come out punching following the commission's decision to halve the rate TelstraClear pays for access to Telecom's network - from 2.63c per minute to 1.13c per minute.

"We had planned this year to spend $350 million on our fixed network in New Zealand alone including over $100 million moving to a next generation network," said Gattung.

"If the combination of interconnect, wholesale decisions which are about to come out and the Kiwi Share mean that we don't think we can get an appropriate return on these investments why would we invest that amount?"

Telecom yesterday reported a profit for the three months to September 30 of $146 million, down 3.3 per cent on the same period last year and a 15 per cent drop on analyst predictions that last week proved to be far too optimistic. Sales dropped 7.1 per cent to $1.31 billion.

However, the quarter saw profit increase 8.1 per cent when cross-border lease gains and international capacity sale gains totalling $25 million booked in the same period last year were removed from the equation.

Ominously, Telecom revenues went backwards in four of its six divisions, with modest gains made only in the New Zealand mobile and internet and directory businesses. Once again, Telecom relied on cost-cutting to prop up its figures.

Telecom's Australian unit AAPT delivered disappointing results. Sales in the consumer division fell 22 per cent as AAPT shed customers - down by a fifth to 470,000. Revenue in the business and internet division was down 5 per cent on a year earlier.

A Goldman Sachs report released last week implied AAPT was suffering in the face of stiff competition from Telstra. "Implications of Telstra's first-quarter 2003 revenue results do not look good for AAPT," the report read.

Overall Australian earnings before interest, tax, depreciation and amortisation rose to $38 million. Telecom will pay an interim dividend of 5 cents a share, unchanged on last year.

Telstra, 58 per cent owner of TelstraClear, was in Gattung's sights. She described Telstra chairman Bob Mansfield's visit to New Zealand last month as a "drive-by shooting of all things Telecom".

Mansfield had urged Telecom to take a more realistic view to wholesaling services to competitors as Telstra, after years of resisting regulatory change, had finally done across the Tasman.

"Let's face it, for most of the last five years Telstra would have cheerfully sold us down the river," Gattung fumed. "It is true they have been a little less aggressive in the last few months, they may have had a road to Damascus conversion as they claim but it is more likely part of their strategy to enable full privatisation of Telstra."

A number of peripheral issues have dogged Telecom over the last couple of weeks, including an unpopular change in pricing for new connections that will hit rural users in particular.

Gattung is understood to be meeting Communications Minister Paul Swain today following his move to check with the Crown Law Office whether Telecom's pricing changes breach its Kiwi Share obligations.

Gattung said she would enter the meeting with an open mind but believed the changes were reasonable. "Telecom used to pay the first $2000 and the customer a third of the rest. We have changed this to customers in remote areas paying a third of the total cost, nowhere near full cost recovery, which is a fairly common principle employed by other utility companies. "