2degrees $52 million loss 'in line with plan'

Loss reflects cost of setting up network, company says

Cellphone firm 2degrees has revealed it lost more than $52 million in the last nine months of 2009. Auckland-based 2degrees, which sells pre-pay cellphones through electronics stores and supermarkets, said the loss was "expected and in line with our plan". The results represent a loss of almost $190,000 a day. After years in planning, 2degrees launched its service in August, and quickly picked up thousands of customers from Telecom and Vodafone. Mathew Bolland, the company's director of corporate affairs, said the loss reflected the cost of setting up a mobile network and shareholders, including United States private equity group Trilogy International, which owns a majority stake, were comfortable with its progress. "These losses are completely in line with what you would expect to enter a market that's got revenues in the billions of dollars. You have to invest to get in," Mr Bolland said. "The shareholders understand the size of the market, the size of the opportunity and are very pleased with the way it's going." Two Degrees Mobile Ltd's accounts received an unqualified signoff from auditors Grant Thornton. The commentary accompanying the results included an assurance that the company's two largest shareholders would provide more equity or loans if required for "the foreseeable future", although they have not guaranteed its liabilities. As well as Trilogy, 2degrees' shareholders include British private equity group Communication Venture Partners, Maori Hautaki Trust and unnamed "associated interests". In February the company said it had attracted 206,000 customers in its first six months since its launch, including 85,000 who had transferred their existing numbers from other providers. Yesterday it declined to comment on how many customers it had picked up since. 2degrees has said it plans to roll out its own retail network over the next 12 months and is thought to be on the verge of launching a 3G network, moves which would allow it to attract higher-value term-contract customers. The results for the nine months to December 31 included revenue of $27.3m as well as a gain on currency movements of $2.1m. The $52m loss compared to an $8.2m loss in the year to March 31, 2009, before it launched its retail service. During the period covered in the accounts, which have just been published by the Companies Office, it spent $8.5m on advertising and marketing, including a campaign fronted by comedian Rhys Darby. 2degrees also incurred a liability of $9.7m to Trilogy and saw its cash at hand fall from $14.7m to $6m. It has since received an $11.1m cash injection from its shareholders in a share placement. Guy Hallwright, telecommunications analyst at Forsyth Barr, said he was not surprised by the loss, which was inevitable whenever a new telecommunications network was established. "That's what it costs to set up mobile operations, you lose money. These operations would lose money for at least three years, although you hope those losses would diminish," Mr Hallwright said. "The guys that invest in this, Trilogy and the like, have done this in a number of markets and they will be fully aware of what the losses are in the early part of the operation."

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