Telecom Corporation of New Zealand is considering investing in further international undersea cable capacity, chief executive Theresa Gattung said on Tuesday.
"That's a question we've currently got under review."
Telecom's current undersea cable project - a half share in the US$1 billion km Southern Cross cable -- goes live between Australia, New Zealand and the United States in November.
"You wouldn't believe the problems we've got and other operators in terms of shortage of international cable capacity," Gattung said.
"The growth that we foresaw in the Internet a couple of years ago when we started Southern Cross has absolutely come to pass."
Southern Cross has a capacity of 120 Gbit/second. It's owned 40 percent by Cable & Wireless Optus and 10 percent by MCI WorldCom.
Customers, costs drive AAPT mop up Telecom's bid to mop up the minority shareholders in AAPT -- was a drive into Australia that would bring benefits both on the revenue and cost benefits, Gattung said.
Telecom is to bid AU$7.25/share in cash for the 20 percent of AAPT it does not own, at a debt-funded cost of AU$444 million.
The recent win of a multi-year telecommunications contract for Commonwealth Bank of Australia showed the muscle the combined group has, the chief executive said.
"We need to be in a position to support customers end to end in completely seamless manner," Gattung said.
On the cost side, equipment procurement contracts that covered both Australia and New Zealand markets were attractive.
"It doesn't make sense to negotiate contracts with handset vendors and with infrastructure providers that might have only half the scale that if you pool the businesses together," she said.
Gattung said Telecom was still on course for AAPT to be earnings positive within three years of its purchase last year - and positive within two years excluding goodwill write-off.
She declined to expand on comments from Telecom chairman Roderick Deane that the company a review of its balance sheet.
Total interest-bearing debt has doubled in the past year to NZ$4.3 billion.
Asked if more equity was needed, Gattung said: "We have under pro-active review what is the right balance sheet management structure to have and that continues to be under review."
Share price suffering Telecom said it offered cash for the AAPT minorities partly because it did not believe its share price was fairly valued for a share-based transaction. Telecom's share price has declined from a peak of NZ$9.81 in April to close on Tuesday at NZ$7.20, down 35 cents.
"Of course we'd like it to be higher," Gattung said, but she added that telcos worldwide had been re-rated as they pursued growth strategies and Telecom's fall was not the worst.
"We are transitioning from the very safe, stable, very predictable model of the past. This is just a much more dynamic game. "When you expand into another geography there's a slightly higher risk profile to that. We believe though there is a great risk in standing still too."
Gattung said Telecom was afflicted by its status as the largest New Zealand-listed company, with a 27 percent weighting on the lacklustre NZSE-40 Index.
"It's one of the reasons we are keen to reposition as an Australasian organisation," she said.
