Telecom's plans to spend more than $500 million on a new mobile network was welcome news for telecommunication users, but came at the expense of shareholders, ABN Amro Craigs broker Chris Timms said last night.
"Until this new network is up and running, winning customers over and generating profits, shareholders are likely to see lower earnings figures impacted by this cost, and a possible reduction in the level of dividends."
That would place further downward pressure on the share price, he said.
By mid-afternoon Telecom's share price was down 15c, or 5.8%, to $2.43. It closed at $2.49 on turnover of 14.4 million shares.
In its announcement, Telecom said the new network would "transform New Zealand's mobile landscape by June 2009".
The wideband CDMA technology, using a frequency of 850MHz, would have a phased launch from November with the start of inbound roaming services, as well as a pilot programme.
There would be a full launch of services by June.
Telecom said it would invest a total of $574 million in a nationwide rollout of the new mobile network.
Chief executive Paul Reynolds said the technology was smart for this country's geography.
Wideband CDMA at 850MHz reached further than higher frequencies, he said.
"It means crucially we need fewer base stations to provide nationwide coverage. That's why it's the smart choice.
"It also penetrates further into buildings. It will give much better in-building coverage than comparable technologies."
Previously, Telecom had announced its mobile capital expenditure would be $161 million in the current financial year and $22 million the following year. That had now been increased by $218 million this year and $173 million the next.
Guidance provided yesterday predicted normalised Telecom Group net profit after tax of $460 million to $500 million - for the current financial year.
Yesterday's presentation also expected depreciation and amortisation of around $900 million to $950 million, while previously the guidance was $870 million to $920 million.
Telecom now anticipated spending $2.4 billion on capital expenditure during the next two financial years.
The company said the business case for the new W850 network was "compelling". It was expecting increased mobile revenues and more efficiency.
"Telecom's new mobile network will be superior on every level: the best nationwide coverage, the fastest Internet on your mobile, a wide range of world-leading handsets, as well as better content, music and business applications," Dr Reynolds said.
The technology would extend 3G service and fast mobile broadband to 97% of New Zealanders about a year in advance of Telecom's main competitor's plans, Telecom said.
