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: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz) in fixed line services and Britain's Vodafone Group (VOD.L: Quote, Profile, Research, Stock Buzz) 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: Quote, Profile, Research, Stock Buzz), 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.