Telecom result helped by $27m compensation payment

Payer is not named, but is believed to be Alcatel-Lucent

Telecom met its earnings forecast for the year thanks to a compensation payment from an unnamed supplier, which masked an otherwise weak result. The company posted an annual profit of $382 million, beating analysts' expectations by about $10 million to $20 million, but only after a $27 million gain from "resolutions and settlements" with the supplier. There is likely to be speculation the payments were made by Alcatel-Lucent, and are compensation for problems with Telecom's XT network, which Alcatel-Lucent built. In its annual results for the year to December 31 2009, filed last month, Alcatel-Lucent NZ noted that there had been compensation payments relating to "claims by a customer" about "components of a network supplied by Alcatel-Lucent New Zealand." These weren't expected to have a material effect on the New Zealand subsidiary's financial results, the filing noted. Alcatel-Lucent's results also noted that the compensation claim was made on a no admission of liability basis. Analysts had been expecting the latest Telecom results to show a profit of between $360 million and $370 million. The profit was 4.5 per cent down on last year's $400 million. Telecom's share price slipped 3 cents to $2.07 in early trading. Revenue fell 6.3 per cent to $5.27 billion, but Telecom's costs fell faster. That meant earnings before interest, tax, depreciation and amortisation were down only 0.2 per cent at $1.76 billion, which chief executive Paul Reynolds said was a "great accomplishment". The company had "halted the significant earnings decline of the previous two years," he said. Telecom's mobile revenues increased less than half a per cent over the year to $826 million, despite the launch in May last year of its $574 million XT network. Mr Reynolds said the growth rate had been affected by compensation payments made to XT customers, without which mobile revenues would have been up 4.5 per cent. The number of customers on its XT network rose by 20 per cent to 712,000 over the three months to the end of June as customers switched across from its CDMA network which is due to be turned off in 2012. Mr Reynolds said the market for broadband was "reaching saturation" with about 60 per cent of homes now on broadband, but it still saw some room for growth. The company hopes to win a contract to partner with the Government in laying fibre-optic cable to three-quarters of homes and businesses. Government investment vehicle Crown Fibre Holdings is due to make a recommendation in October on who the Government should partner with. - Additional reporting by David Watson

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Tags alcatel-lucentxttelecomPaul Reynolds

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