Telecom has a flat quarter

Investment hits profits, says Gattung

Telecom experienced a third quarter earnings figure which it describes as “flat”. EBITDA — earnings before interest, tax, depreciation and amortisation — were down 3.0% for the quarter ending March 31 on the corresponding period last year, at $606 million. This was on revenues up 3.4% to $1.4 billion.

Net profit after tax and adjustment for abnormal items over the period showed a 5% lift to $231 million.

Bottom line growth in earnings is about 9% year on year, says CEO Theresa Gattung.

The “slight” EBITDA decline was largely due to the company’s investment in mobile and broadband in New Zealand, she says.

Falling land-line revenues are more than offset by a growth in mobile and “broadband” and a $60 million boost for “solutions” business, mostly accounted for by the takeover of gen-i and Computerland.

Broadband growth puts the company in line to achieve the well-canvassed target of 250,000 residential users by the end of the calendar year, says Gattung. The residential figure currently stands at 169,000 according to notes for the financial results presentation in Sydney. March is reported to be the best month yet for broadband residential connections. New growth stems almost entirely from the 1Mbit/s and 2 Mbit/s offerings, Gattung says. However, the move away from dialup to broadband has seen internet revenues decline, even as the customer base grows.

Net profit after tax for the nine months to March 31 is $650 million, a rise of 8.9% on the same period last year.

“We’re very pleased with the third quarter performance,” says Gattung. “In particular we continued a really positive momentum in some of the key growth areas such as mobile, data and solutions.”

Mobile shows a continuing double-digit revenue growth. Data revenues in the mobile business have risen by 90%, Gattung says. Subsidising of broadband modems and mobile handsets has, however, raised cost of sales markedly.

The Southern Cross cable link, which looked moribund two years ago, has experienced a resurgence with new sales of $167 million over the quarter — to other carriers, not Telecom, Gattung emphasises.

“Job one for Telecom and for the entire industry is to migrate Kiwis from dialup to broadband,” she says. Telecom must also concentrate on “moving from the access layer to the service layer,” offering value-added services from security to games and music.

Telecom will be concentrating more on the wholesale market, particularly in the fourth quarter of the year, Gattung says. “We now have 12 competitors marketing UBS solutions, helping us grow the market. We’re still absent TelstraClear joining the broadband bonanza. We’re hopeful that some time in the next few months either because we’ve negotiated a commercial outcome, which is our preferred position, or because we get a final decision in a regulatory determination, they will join the party."

Gattung says 23% of new broadband connections were delivered by wholesale partners in the last quarter.

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