UPDATE 2-NZ's Telecom sees recovery after two years

(Adds analyst comment, updates share price)

By Adrian Bathgate

WELLINGTON, April 10 (Reuters) - Telecom Corp (TEL.NZ), New Zealand's largest company, on Thursday flagged a return to earnings growth after two years once it gets through a government-ordered break-up and boosts investment in new services and technology.

The New Zealand government has ordered the former monopoly and New Zealand's largest company to split into separate businesses and open its network to boost competition in a market it still dominates.

Telecom, which competes against Australia's Telstra Corp (TLS.AX) in fixed line services and Britain's Vodafone Group (VOD.L) in mobile, has seen profits fall as costs rise, revenue from its core fixed-line business declines and mobile growth slows, and has said its outlook remained cloudy.

Chief Executive Paul Reynolds, who joined in October from former British telecoms monopoly BT Group (BT.L), told an analyst briefing that the company was keeping its profit target for this year, and saw a return to growth after two years.

"First impressions are that he's offering short term pain for longer term gain," said ING senior investment analyst Craig Brown.

While investors had been looking for Telecom to provide detailed targets and strategies, there was still a lot of uncertainty due to issues like competition and regulation, Brown said.

Shares in Telecom fell 1.3 percent to NZ$3.75, in a broader market down 0.75 percent .NZ50.

Reynolds reiterated the company's forecast for net profit in the year to June 2008 of NZ$700-730 million ($560-584 million). He also said the decline in earnings before interest, tax, depreciation and amortisation (EBITDA) in the key New Zealand market would be at the high end of the previous 5-8 percent range in the June 2008 year.

For the group, Reynolds said EBITDA would fall by 4-6 percent in 2009, and up to 2 percent in the 2010 year, before growing by 4-6 percent from 2011-2013.

The company had strategies for long term growth, based on better technology and products, and running the company more efficiently, Reynolds said.

Telecom would invest to drive the growth with capital expenditure of NZ$975 million in the 2008 year rising to at least NZ$1 billion in 2009.

In the year to June 2007 Telecom booked a net profit of NZ$3.02 billion, boosted by an asset sale. Profit from continuing operations was NZ$844 million. (NZ$1=$1.25) (Editing by Jonathan Standing)