New 3G network may transform NZ Telecom

Thanks to the rollout of a new, third-generation mobile-phone network, Telecom Corp. of New Zealand Ltd. may see its fortunes change for the better after struggling for two years amid enforced operational separation and a clunky old mobile system.

While earnings may continue to be under pressure this year, analysts say the new network should enable Telecom to boost competitiveness and give it an edge against rivals Vodafone New Zealand, a unit of Vodafone Plc., and newcomer 2degrees Mobile Ltd.

"This really changes the model and the attractiveness of the services they (Telecom) can provide," said Rosalie Nelson, telecommunications research manager at global IT market intelligence consultants, IDC Research.

Telecom's new XT network launched last month is both "defensive" and "attacking" as sticking with its increasingly isolated code division multiple access mobile system was leading down a dead-end, she said.

CDMA technology is widely used in the U.S. and South Korea.

The company will offer 3G services on a new European-aligned wide-band CDMA network, giving it an edge over a similar, but older, network used by Vodafone.

Telecom, the country's biggest listed company by market capitalization and the largest telecom operator by subscribers, has been struggling since May 2006 when the government said it would force it to operationally split into three units and open its fixed-line network to rivals to try to inject more competition into the market.

Telecom has been attacked by its biggest shareholder, U.S. hedge fund Elliott International L.P., which has a 3% stake, for the NZ$574 million spent on XT together with a NZ$1.3 billion fiber-to-the-road network. Elliott and others argue Telecom should have conserved cash in tough times.

The company's shares have halved in value from two years ago to NZ$2.66. It forecasts net profit to fall 5%-8% from a year earlier to between NZ$460 million and NZ$500 million in the fiscal year ending June 30, 2009, with earnings hurt by spending on networks. It expects another 1%-2% fall in ...