Nov. 6 (Bloomberg) -- Telecom Corp., New Zealand’s biggest telephone company, said first-quarter profit unexpectedly increased, buoyed by a tax credit and a surge of subscribers to a new mobile network.

Net income rose 9.4 percent to NZ$163 million ($117 million) in the three months ended Sept. 30, from NZ$149 million a year earlier, the Auckland-based company said in a statement today. Analysts expected NZ$88 million, according to the average of five forecasts from a Bloomberg News survey.

Telecom is seeking to arrest an earnings slide by reducing costs and spending as much as NZ$3.5 billion on new networks and systems to combat Vodafone Group Plc and Telstra Corp. Full-year operating profit fell 6.5 percent last year and will range from 1 percent lower to 2 percent higher in the current year, the company said today.

Operating profit “has remained on track for our full-year guidance driven by a combination of revenue growth in mobile and the ongoing process of our cost out program,” Chief Executive Officer Paul Reynolds said.

Telecom shares rose 6 cents, or 2.4 percent, to NZ$2.54 at 10:42 a.m. in Wellington trading.

First-quarter operating profit, or earnings before interest, tax, depreciation and amortization, fell 4.1 percent, the company said today.

Mobile Network

Telecom saw a net increase of 64,000 mobile customers in the quarter and had 2,250,000 customers at Sept. 30. Of those 242,000 were on the company’s new high-speed XT network, up from 165,000 about three months ago.

Revenue from mobiles rose 3.4 percent though expenses associated with promoting the new service also increased.

Overall revenue fell 6.5 percent because of competition and lower prices, while New Zealand’s weak economy reduced customer spending. Economic conditions reduced operating profit by about NZ$10 million in the quarter compared with the year-earlier period, the company said.

Telecom received a NZ$35 million dividend from its Southern Cross Cable unit, which operates an undersea fiber network linking New Zealand, Australia and the U.S. It expects to receive as much as NZ$80 million in dividends this year.

Changes to New Zealand tax law allowed Telecom to record a NZ$43 million tax credit. As a result, full-year net income will range from NZ$400 million to NZ$440 million, up from a previously forecast of NZ$370 million to NZ$410 million, it said.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

Last Updated: November 5, 2009 16:46 EST