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Telecom New Zealand invests for long term growth

MEDIA RELEASE

10 April, 2008

Telecom New Zealand invests for long term growth

Telecom New Zealand is investing for long term health and to drive bottom line growth, says Telecom New Zealand chief executive Paul Reynolds.

Speaking alongside Telecom's other senior executives at the company's annual management briefing day in Sydney, Dr Reynolds outlined an action plan for return to growth.

Dr Reynolds said Telecom had a clear strategy for building strong customer preference in broadband, mobile and its Australasian information and communications technology (ICT) capability.

We have an exciting future ahead of us bringing faster and easy-to-use products and services to our customers in New Zealand and Australia. We have already begun the mammoth task of investing in the technology to deliver them.

"I understand the rough ride our shareholders have experienced, particularly over the past two years. The declining share price reflects the uncertainty that has existed.

"Telcos around the world are grappling with similar challenges given the pace of regulatory, competitive and technological change.

"Many things within our business are in good shape while others, to be frank, need fixing. That's why we will be focusing on getting it right first time for our customers; getting more efficient, and building a world class broadband IP platform that will deliver new services for years to come.

"We anticipate the pressure on our core earnings will moderate over the next two years, followed by a return to growth.

"Specifically:

We are planning containment of near-term EBITDA decline 4-6% in the financial year to June 30 2009 and 0-2% for the financial year to June 30 2010 before subsequent growth of 4-6% per annum in the financial years June 30, 2011 to June 30, 2013.

We are forecasting investment of capital expenditure of NZ$1 billion to NZ$1.1 billion in the financial year to June 30 2009

Our dividend policy remains unchanged at a 75% pay-out ratio, but for FY09 & FY10, subject to no material adverse change in circumstances we will target the higher of 75% of reported earnings (after adding back relevant non-cash items) or 24 cps with quarterly dividends of 6 cps

We are committed to strong 'A' credit ratings

We're building an all-internet protocol (IP) platform for efficiency and innovation as we transition ourselves to a lower cost operating model that will help up compete successfully in the future

We're building a new management team, too. Last week we announced Russ Houlden as our new CFO. This new team will underpin our drive to build a customer-focused culture."

For the financial year to June 30 2008 Telecom's guidance is:-

New Zealand Operations full year EBITDA decline of 7-8%
Australian Operations EBITDA now A$70 million to A$80 million
Group EBITDA approximately NZ$1,880 million to NZ$1,900
Depreciation & amortisation approximately NZ$730 million to NZ$750 million
Financing costs NZ$150 million to NZ$160 million
Normalised NPAT (net profit after tax) guidance for the Group remains NZ$700 million to NZ$730 million
Capital expenditure forecast approximately NZ$975 million

ends

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