New Zealand Telecom'Realistic' About Losing Share Of Home Phones

WELLINGTON -(Dow Jones)- Telecom Corp. of New Zealand is setting "realistic" goals as to how much market share it stands to lose to rivals, including Vodafone New Zealand, amid a toughening regulatory environment.

Speaking on the sidelines of Thursday's annual meeting in Wellington, Telecom's Chief Financial Officer Marko Bogoievski said the former state-owned monopoly and fixed-line incumbent is watching its back.

"Competition has always been the thing you've got to keep an eye on. We're acutely aware of other competitors' capabilities," Bogoievski told Dow Jones Newswires, adding, "we've always considered (Vodafone) to be formidable and to be taken seriously."

Telecom, New Zealand's biggest fixed-line company, is under earnings pressure after a surprise decision by the government to push through legislation that, if approved, will open its fixed-line copper wire local network to competitors from next year.

Regulators are also mulling the enforcement of a so-called "naked digital subscriber line service" where Telecom will be required to offer broadband Internet connections without the traditional revenue generator of a fixed-line phone.

Both moves put Telecom's current 80% share of the country's NZ$5.8 billion telecommunications market at risk.

Rival Vodafone NZ, a unit of UK-based Vodafone, has already mounted a challenge. The mobile operator this month launched a wireless broadband offer that goes head-to-head with Telecom's broadband plans.

Vodafone also plans to launch a "home zone" service early next year that, for a fixed monthly fee, will allow customers to make calls within several hundred meters of their home at no extra cost.

Telstra Corp. subsidiary TelstraClear has also signaled it plans to compete more aggressively with Telecom. It recently launched a nationwide broadband Internet offer via Telecom's wholesale network and is planning to roll out a third generation mobile network in the North Island town of Tauranga by the middle of next year.

Bogoievski said Telecom was "keeping an eye on where investment is being made," adding that he "wouldn't single out (Vodafone) necessarily."

Telecom controls around 93% of fixed-line phone connections. Bogoievski declined to give an exact figure on what share of the market Telecom wants to retain.

"We haven't got a percentage. We are looking at maintaining as much as possible, but we are being realistic," Bogoievski said.

UBS analyst Richard Eary estimates Telecom generated 77% of earnings before interest, tax, depreciation and amortization in the year ended June 30, 2006, from its local access monopoly. The brokerage forecasts Telecom will lose 9% of its home line connections by fiscal 2010.

"Vodafone's strong brand name, distribution and market share, high fixed-line access prices, coupled with high mobile usage in home and office environments, imply Vodafone is well-placed to challenge Telecom's fixed-line access monopoly," Eary said in a research note.

At 2326 GMT, Telecom was down 0.7% at NZ$4.24, against a broader market down 0.2%.

-By Rachel Pannett, Dow Jones Newswires; 64-4-471-5990; rachel.pannett@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 5th October 2006