Telecom signals international call overhaul

Company warns a change in the law could deliver a $30 million tax burden

Telecom has signalled it will overhaul its international call charges this year and offer more product bundles to encourage consumers to put all their business with Telecom.

The company reported a solid $80 million net profit for the three months to the end of December, when it increased its share of the broadband market by securing 64 percent of new broadband customers and added 60,000 mobile customers, to Vodafone's 9000.

Craigs Investment Partners analyst Geoff Zame said revenues were soft, costs were better than expected and the operating numbers were "flat".

Telecom warned that a law change could lumber the company with an extra $20 million to $30 million in taxes both this year and next. Other problems also lie ahead as the government presses ahead with plans to invest in a fibre-optic network that could compete with Telecom's fixed-line network, mulls a $50 million-a-year industry levy to pay for upgrades to rural broadband, and forces Telecom to bear all the costs of phone services to "uneconomic" customers.

Chief executive Paul Reynolds would not elaborate on plans for international calling. "It is an incredibly competitive market. Our competitors would act upon them."

Zame expected Telecom would offer more "all you can eat" international pricing plans. "It is designed to get more stable revenues and lower customer churn."

Reynolds was confident a move to bundle more services would not fall foul of regulators. "There are some pretty clear guidelines and rules."

If Telecom was unsure, it would consult the Commerce Commission.

Telecom slashed the book value of its stakes in Australian mobile carrier Hutchison and venture capital firm TMT Venture from $471m to $196m, but that did not show up in its profit result as it took the hit directly on its equity reserves. It subsequently recognised an increase in the fair value of the investments of $24 million, which it recognised as income.

Reynolds said foot traffic to its retail stores had returned to normal after "the temporary setback" of its XT mobile network south of Taupo crashing twice in recent months.

But chief financial officer Russ Houlden cited continuing fallout from the outages as one factor that was likely to mean Telecom's profit for the full year would be at the lower end of its $400 million to $440 million guidance — even if the extra taxes did not eventuate.

Reynolds said Telecom expected to appoint an international consultant to review its XT network next week, and it might take six weeks to complete a report. Telecom had already diagnosed the fault and taken steps to avoid a recurrence.

The failure of a piece of switching equipment knocked 5 percent of Telecom's cellsites offline triggering a surge in traffic as customers tried to reconnect to the network, which overloaded a controller in Christchurch. Telecom had doubled the processing power of the controller to ensure a similar surge would not result in overloading. It had already planned to add two controllers in Christchurch and Auckland.|

A policy under which Telecom has guaranteed to pay a 6 cent quarterly dividend ends in June. Reynolds said it would advise investors of its new dividend policy in May.

"We went into our transformation period two years ago and we said we would spend heavily and invest heavily and return the company to EBITDA growth this year, which we have done."

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