The ratings on Telecom Corp. of New Zealand Ltd. (TCNZ) reflect the company's superior market position as the only full-service provider in the relatively low-growth New Zealand telecommunications market, underpinning strong cash generating ability; a sensible strategy to diversify its activities into the larger, more competitive, and stronger growing Australian market; and a moderate financial profile. Nevertheless, the primarily debt-funded acquisition of 100% of Australian-based AAPT Ltd. (A+/Stable/A-1) results in heightened business risk and a more aggressive financial profile, resulting in reduced credit protection measures. In the short to medium term, AAPT Ltd., Australia's third-largest telecommunications company, is not expected to generate free operating cash flow while it heavily invests in broadband infrastructure. Although the growth of mobile and data
