Successful cost reductions will be a key part of the new
Telecom's financial results for the six months to June expected
out tomorrow, Forsyth Barr broker Tom Bliss says.
"The key positive we expect is the extent of the cost
reductions which will have allowed Telecom to meet its
operating earnings guidance for the second half, despite
increasing competition in both fixed and mobile - and
potentially weaker revenues than our forecast."
Operating profit is forecast to be $486 million for the six
Following the result, Telecom would restart its on-market
About $130 million was still to come by the end of 2012 out
of the $300 million total announced for the buy-back
programme, he said.
Telecom's second-half revenue was expected to be below the
first half in most of the telecommunications services.
Mr Bliss expected fixed-line revenue falls to have
accelerated as lower-priced broadband bundles gained traction
in the half year.
Broadband average revenue per users (ARPU) was likely to have
In the mobile division, further customer loss was expected as
CDMA connections continued to fall and XT gains did not fully
offset those losses.
"With many of the CDMA disconnections being very low ARPU, we
expect Telecom's overall mobile ARPU to have increased
although customer acquisition costs are also likely to have
For the six months to June, Vodafone lost about 50,000
customers and 2degrees gained about 100,000 customers.
"While cost and capex reduction plans and the current
on-market buy-back have boosted Telecom's share price, our
model suggests the market is now factoring in a strong and
sustained rise in returns on capital. We believe this is
likely to prove over-optimistic, given increasing competition
in the retail business."
Telecom's share price was above Forsyth Barr's valuation.
Sky Network TV is also expected to report tomorrow. Mr Bliss
expects operating earnings of $344.8 million for the year to
June, up 3.9% on the previous corresponding period.
The final dividend is forecast to rise 1.5c per share to take
the full-year dividend to 23c, up 4.5c.
Sky TV was well positioned for growth, he said. The company
was expected to have achieved another period of solid gains
in net subscribers and a net gain of about 100,000 MySky