Credit rating agency Fitch has cut Telecom's rating and says there may be further reductions after the phone company reduced its earnings forecasts.
Telecom's rating fell one notch to A-, which Fitch blames on intense competition pushing down revenue and higher-than-expected capital spending.
Fitch says there may be more cuts if regulatory changes result in weaker earnings, including the possible structural separation of Telecom.
Telecom on Thursday announced its gross earnings could fall by as much as $100 million, or 5.5%, to $1.72 billion in the year to June 2011.
Earnings growth has been pared back in the two years after that, before growing an additional $20 million to $80 million in 2012 and 2013.
Telecom says most of the reduction is due to the Government's rural broadband plan, which it previously said would cost it $56 million a year over the next three years.
Chief executive Paul Reynolds says it is also due to declining prices for voice, data and broadband services amid intense competition and the lingering effects of the economic downturn.
In response to falling revenue, Telecom says it is on target to cut $240 million in costs this year and says there is more it can do by simplifying its business and removing duplication.
Initially, 200 management jobs will go this year and Dr Reynolds says more are likely. Telecom has about 8000 employees.
Dr Reynolds says the company will seriously consider offers for its under-performing Australian arm AAPT if the price is right.
He says he is not ruling out the possibility of splitting the company's retail and network arms, so it can fully participate in the Government's ultra fast broadband plan.
Analyst Paul Budde says Telecom is now feeling the pain caused by a legacy of strategic mistakes. He says the company needs to take the lead on issues like ultra fast broadband and resolve problems with its XT mobile network.
Telecom shares fell 6 cents, or 2.5%, following the earnings announcement on Thursday. Shares were unchanged at $2.18 on Friday.