Updated: Telecom cuts financial guidance

Rumours of AAPT sale quashed; guidance for 2011 and 2012 amended

AAPT hasn't been sold and Telecom chief executive Paul Reynolds hasn't resigned.

Rather, the trading halt on Telecom shares that was announced at 10.07am was due to Telecom issuing new financial guidance for the 2011 and 2012 financial years.

The guidance was revised, says Telecom, for a number of reasons, including regulatory decisions on the Telecommunications Service Obligation and Rural Broadband Initiative made last month, and a softening revenue outlook, due to lower mobile revenue growth, price pressures in voice and data markets and flow-on impacts of the economic downturn.

EBITDA for 2011 was reduced from a range of $1.820 billion to $1.855 billion to a range of $1.720 billion to $1.780 billion. Projected EBITDA growth for 2012 was reduced from $70 million to $110 miilion to a range of $20 million to $80 million with a similar reduction in 2013.

The forecasts assume AAPT won't be sold and also assumes no impact from the government's Ultra Fast Broadband rollout.

Telecom briefed analysts and media at 4 pm today and confirmed Computerworld's story that 200 management staff face the chop as part of an acceleration for what Telecom CEO Paul Reynolds calls the "Cost Out" programme.

Reynolds also said Telecom was prepared to work with government positively to realign "copper world regulation" with the fibre world that he said is rapidly emerging.

Earlier today Telecom group company secretary Craig Mulholland wrote to the Australian Securities Exchange about the trading halt, noting: "Telecom Corporation of New Zealand Ltd has put itself into trading halt on the New Zealand Stock Exchange and requests the ASX grant a trading halt pending a materially price-sensitive announcement in relation to financial forecasts".

That set off a flurry of speculation, mainly around the possible sale of Australian unit AAPT. Two days ago, rumours circulated that Telecom's Australian subsidiary AAPT was to be sold. That came after earlier rumours that Telecom International could be on the block.

The full text of Telecom's announcement to the NZ Stock Exchange can be found here.

Also this morning, the Commerce Commission said Telecom had overstated the value of its fixed assets in a regulatory report due to using the wrong accounting methodology.

The valuation methodologies used can affect the estimated cost of providing access and backhaul services, the commission said. If that is the case, a reevaluation of those costs could affect Telecom's earnings.

Telecommunications Commissioner Ross Patterson says the initial regulatory financial statements raised issues about the methodologies used in the preparation of this information.

"The Commission has always regarded the first year of regulatory reporting as a transition year and has highlighted areas where a re-working of the reporting requirements, particularly in relation to the attribution of income and expenses and valuation of Telecom’s fixed assets, is likely to be necessary,” he said in a statement this morning.

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