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"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 months.
Following the result, Telecom would restart its on-market share buy-back.
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 fallen.
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 risen."
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 subscribers.