The impact new mobile company 2degrees is having on Telecom mobile connection growth will be a main focus for analysts when New Zealand's largest listed company reports tomorrow.
Craigs Investment Partners broker Chris Timms said yesterday Telecom's XT campaign could be losing momentum, which was not surprising based on the underwhelming level of subsidies in the market.
However, Telecom introduced more aggressive offers last week - double voice minutes, $12 unlimited texting and $300 credits - which appeared more in line with its stated strategy of attacking Vodafone, clawing back market share and achieving sustainable revenue growth.
"We suspect XT has made some ground in the corporate segment via its Gen-i sales channels, but very little ground in the consumer and small and medium enterprise [SME] sectors.
"While revenue is split roughly equally across the three segments, the majority of the mobile profit pool is in consumer and SME. This may explain the renewed competitive intensity of XT's offer focused on these segments," Mr Timms said.
Third mobile company 2degrees has secured more than 100,000 live connections since its launch, and might now be a victim of its own early success.
A large proportion of the connections were outside its coverage area of Auckland, Wellington and Christchurch, and cell site deployment might need to be accelerated in some areas to reduce roaming charges to Vodafone.
The other challenge for 2degrees would be to ensure repeat prepaid business. Porting data suggested the majority of connections had been at the expense of Vodafone rather than Telecom, which was expected given the target demographics and the ability to swap SIM cards been the two networks, he said.
Craigs was forecasting first quarter operating earnings for Telecom of $428 million, down 8.2% on the previous corresponding period.
Forsyth Barr was forecasting operating earnings of $448 million, down 3.4%.
Broker Suzanne Kinnaird said Telecom was not expected to return to profit growth before 2011 and she believed the proposed changes to the telecommunications services obligation (TSO) and likely reductions in mobile termination rates could delay that until 2012.
"Although Telecom's share price is below our valuation, this applies to most of the companies we cover and our recommendation remains hold.
"Growth from the new XT mobile network could surprise on the upside, but confirmation of that would probably take one or two further quarters, she said.
