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NZ Telecom Quarter Profit Is Flat, Outlook Is Clouded

Telecom Corp. of New Zealand, which is being forced to split up by the government, posted a flat first-quarter net profit, and slightly increased its profit forecast range but said its forecasts were clouded because of regulation.

Telecom, which competes in New Zealand with Australia-based Telstra's TelstraClear and a local unit of British mobile giant Vodafone, said higher costs and possible squeezes on income from enforced operational separation and regulated price setting would dictate its outlook.

Telecom has struggled against persistent pressure on its fixed line unit from rising competition, as well as slowing growth in mobile phone income.

"While operational separation will bring some tough requirements, and is a very complex exercise, we're now moving to an environment in which the need for any further regulation is greatly reduced," Chief Executive Paul Reynolds said in a statement.

A former state-owned monopoly, Telecom has been ordered by the government to split into wholesale, retail and network arms and open its phone network to rival companies.

The company booked a net profit for the three months to Sept 30 was NZ$225 million (US$170.4 million), compared with NZ$224 million last year, and an average forecast of NZ$183 million in a survey of six analysts by Reuters.

The 2006 figure included a one-off NZ$20 million gain from an asset sale, and about NZ$30 million in contribution from Telecom's directories arm, which it sold for NZ$2.24 billion in March.

Telecom declared an unchanged dividend of 7 cents a share.

Shares in Telecom closed on Thursday at NZ$4.28, having fallen more than 10 percent so far this year compared with a 4 percent gain in the NZSX-50 index, of which Telecom makes up about 18 percent.

Telecom's group earnings before interest, tax depreciation and amortization (EBITDA) were fractionally higher at NZ$482 million, compared with last year's adjusted figure, from virtually unchanged revenue of NZ$1.41 billion. It repeated its August forecast of a 5 percent to 8 percent fall in EBITDA for the year to June 2008.

The company also readjusted its annual profit forecast for 2007/08 to between NZ$700 million to NZ$730 million from the previous NZ$680 million to NZ$720 million range compared to an adjusted net profit of NZ$856 million in 2006/07.

In recent years Telecom has seen strong growth from its mobile and Internet businesses, which has offset declining income from traditional fixed-line phone services. In the first quarter mobile revenue fell 1.5 percent while it added a net 48,000 new connections to take its total consumer base to 2.02 million.

However, information technology income grew 12.9 percent, broadband sales rose 4.5 percent and wholesale income was up 10 percent.

Revenues also reflected the contribution of the Australian PowerTel operation acquired last year. The troubled Australian operation increased its revenues and underlying earnings to help reduce its overall loss by 37 percent to A$5 million.