17 Mar 2010

Telecom expects broadband plan to hurt earnings

7:12 am on 17 March 2010

Telecom says its earnings will suffer under the Government's new rural broadband plans in a fresh blow to the company's plans to return to growth.

The listed telecommunications firm says the plans will shave up to $56 million a year off its gross earnings for the next three years.

The Government has decided to stick with its original plan to spend $300 million rolling out broadband to rural areas.

Of that, $252 million will be funded through a levy on the telecommunications sector, replacing the controversial Telecommunications Service Obligations levy, or TSO.

Under the TSO, Telecom received roughly $60 million to $70 million for providing basic phone and dial-up services to rural communities.

This year is the last that Telecom will receive the subisidy.

Telecom says that will reduce gross earnings by $56 million a year for the three years, about 2% of the $1.8 billion analyts expect the company to make in 2011.

The earnings downgrade comes as Telecom warned in February that its earnings for this financial year would be hit by a $10 million compensation package paid to XT mobile users following serious faults in its network.

On Tuesuday, Telecom's share price fell to an all-time low of $2.17.