Profit at Telecom is down by a third, due to lower mobile and broadband prices and higher regulatory costs.
Telecom made a profit of $149 million in the three months to September - a decrease of 34% on the same period a year ago.
Revenue rose 2% to $1.4 billion, led by broadband and IT services, offsetting a fall in mobile phone services as lower prices undercut an increase in subscribers.
Costs rose 5% to $977 million, as it employed more people for the split of its operations into retail, wholesale and network arms under new rules.
Telecom's chief executive Paul Reynolds says the company is not immune to the economic downturn.
In Australia, Telecom's AAPT arm reported lower sales and higher costs, including setting up offshore call centres.
Telecom is spending heavily on new fixed line and mobile networks to offer more and faster services to combat the loss of customers to rivals, and arrest a fall in earnings.
The company repeated that it expects to make a full year profit of between $460 - $500 million.