There was the usual circus of media hype around Telecom’s latest quarterly profit announcement but you have to wonder what was left out.
Some months back, the Telecom rumour mill had it that CEO Roderick Deane was off to head up Fletcher Challenge. That was denied by Telecom and didn’t happen but, coincidentally, political sources said Deane had been asked to stay while the company was readied for sale.
An already publicly listed company?
Some of what was announced last week fits, however, with the latest Telecom rumour, that the company is fattening itself — and the share price — so that its major US shareholders, Ameritech and Bell Atlantic, can sell their shares and reinvest in Telstra.
There’s a certain logic in that. Telstra wants to get into Europe, and the MCI-BT alliance needs a Pacific hub.
Part of the quarterly profit announcement would seem to take this logic one step further. The company’s recently concluded Performance 2000 had been aimed at “permanently removing a substantial amount from the previously planned operating cost structure of Telecom’s core business”.
The plan is, says Deane, to “progressively remove $500 million from Telecom’s planned capital expenditure programme between now and the end of the 1999 - 2000 financial year.” Focusing on costs and cutting capital expenditure has obvious bene-fits for stock values. Which brings us neatly back to the beginning. What does the long-term future hold for Telecom?
The Q1 earnings are a positive sign. Earnings rose 6.2% to $188 million in the three months to June 30. Given the stagnant nature of the economy at the moment, such an increase can only be good news for shareholders, and an increasingly attractive proposition for investors.