Last week, Communications Minister David Cunliffe approved Telecom's plan for a three-way split in its operations into wholesale, retail and network access operations, with the Government having decided to reregulate the sector to boost broadband investment and competition.
ABN broker Peter McIntyre said Telecom chief executive Paul Reynolds was expected to reveal he had a credible plan to limit the negative effects of the company splitting and likely "earnings erosion'' next year.
"He has the opportunity to reset market expectations and outline a plan of action to return the New Zealand business to growth,'' Mr McIntyre said.
However, he said market expectations were "considerable''.
The level of uncertainty in the three-way split and subsequent "emerging operating environment'' would "make it difficult for Telecom to meet these [expectations] on the day''.
He said he expected Mr Reynolds' plan would include heavier short-term investment in capital expenditure and operating expenses to achieve the turnaround required and to reignite its retail division.
Mr McIntyre said overall guidance from the briefing for 2009 was expected to include increased capital expenditure beyond $1 billion.
It was also expected to include a decline in growth of earning before interest tax depreciation and amortisation from -2% to -5%, a decline in growth of net profit after tax from -10% to -20% and slight reductions in quarterly and annual dividends.
Mr McIntyre said that it was important for Telecom to deliver a considered strategy for the transition period and long-term targets.
However, he cautioned that many uncertainties were likely to remain, including the depth of fixed-line competition, trends in access prices and competition in the mobile sector.
"There remains a real possibility a third mobile operator will enter the fray within 12 months, although Telecom's own execution is more important for achieving a turnaround in mobile,'' he said.
ABN maintains a hold recommendation on the stock and has not altered its 12-month target price of $3.90, Mr McIntyre said.
