Telecom New Zealand's core earnings remain under pressure but a big dividend from its half-owned trans-Pacific cable network should see the company post a significant gain in its third quarter profit.
Telecom is expected to book a dividend of US$100 million from the Southern Cross Cable Network, which links Australia, New Zealand and the United States.
Excluding the Southern Cross dividend, average analysts forecasts for the quarter were for a net profit of around NZ$153 million compared to NZ$205 million in the previous March quarter.
Depending on exchange rate calculations and other abnormal costs, the reported profit was likely to exceed NZ$350 million.
Forsyth Barr head of research Rob Mercer is forecasting a net profit after tax of around NZ$140 million, excluding a contribution from Southern Cross.
Australian plans
Analysts said operationally, little had changed for Telecom since the previous quarter to December and interest was focused on the company's plans, particularly in Australia.
Mercer said the market was keenly awaiting word from Telecom on its new generation CDMA mobile strategy, especially in the light of recent figures from competitor Vodafone NZ that showed an increase in customers of 136,000 in the March quarter.
"We need to know that the CDMA is going to roll out on time and how testing has gone. They have to put a timeline out there," Mercer said. Telecom, which announced it was abandoning its CDMA (code division multiple access) roll-out in Australia, has previously said it would have the advanced digital network launched in July.
While the cancellation of the CDMA rollout in Australia was not entirely unexpected, further comment on Telecom's strategy and options there was also needed, Mercer said.
"Don't leave us in the dark - give us a clear back-up strategy," he said.
UBS Warburg analyst Paul Richardson said he was not expecting a significant writedown from the halting of the Australian CDMA rollout as the sites could be sold or rented and some equipment used in the New Zealand roll out.
He was expecting NZ$152 million net profit before abnormal gains of around NZ$238 million including the Southern Cross dividend, less costs associated with the company's failed bid for Cable & Wireless Optus.
Telecom lost out in the bidding war for the Australian telco to Singapore Telecommunications, which could pay as much as AU$17.2 billion for the purchase.
Richardson said trends seen in the second quarter were expected to continue with a slowdown in discounting on national and international calls, still relatively slow growth in mobile and continued margin pressure in Australia.
"The main issues are further clarification on strategy and further transactions such as whether to sell Southern Cross or securitise it somehow," Richardson said. Other shareholders in Southern Cross are Cable & Wireless Optus with 40 percent and MCI WorldCom with the remaining 10 percent.
