On the Line with New Zealand Telecom

Nichols: Part of that dealing with the government is their wanting to increase broadband speeds. What are you doing to help there?

Houlden: We've committed to a very big program of broadband improvement. We've already, in fact, improved our broadband from 35 percent worse than the UK, as measured by bitrate, to 27 percent better than the UK, as measured by bitrate, over the last couple of years.

We've already made massive improvements. Those improvements will continue for the next few years as we roll out what we call fiber-to-the-node. That means taking fiber from the exchange to the local cabinet, thereby shortening the local loop length. That's the amount of copper from the cabinet to the house.

That enables much faster broadband. With ADSL2-Plus we can give 10 - 20 Mbps with that fiber-to-the-node. As you move to VDSL, we'll be up to 50 Mbps plus. That will be available to over 80 percent of the population in 2011, which will put New Zealand really quite at the forefront of broadband around the world.

Nichols: Now, one of your goals is to become number one in wireless, but right now Vodafone's market shares are roughly 60 and yours is roughly 40 percent, minus a little bit. That's a big gap.

Houlden: It is a big gap. The first thing is to get the right network in place. So, given that we were previously on a technology that wasn't going to help us - a technology that had a dwindling handset range - we would have never have gotten there with CDMA.

Now that we've launched the 3G network, we've done it at 850 MHz. We've got a fantastic handset range. We've also got the best network in New Zealand. It's been independently measured by Red-M as being a faster network than the Vodafone 3G network.

The independent commentators are also doing their independent tests, and they're also concluding that our network is faster. We've now got the best network in New Zealand. The job now is to get out there and sell it.

Nichols: One of the nice things about your company, historically, is the large dividend it pays. Currently, you're yielding around 10 percent. One of the big concerns is how sustainable is that dividend? What can you tell us about your dividend policy going forward?

Houlden: What I can tell you is that the board has committed to 24 cents per share dividend underpin for FY 09 and FY 10. That's pretty close to 100 percent pay out of our profit after tax.

It hasn't committed beyond the end of FY 10, so there's another five quarters to go with that dividend underpin. It will decide what to do for FY 11 and beyond in the first half of calendar 10, and we'll announce it at that stage.

Nichols: Thank you for your time. This has been Russ Houlden, the CFO of Telecom New Zealand, which is the largest company in New Zealand, and trades in the U.S. under ticker symbol NZT.

I'm Allan Nichols with Morningstar. Thank you for joining us.