Telecom puts aside cash for Telstra case

A provision in Telecom's annual accounts of $A37.4 million for further operating losses associated with winding down loss-making Australian subsidiary Pacific Star will also cover contingent liabilities arising from a massive lawsuit by Telstra. The Australian telco is suing Pacific Star for $A96 million, some of which is not disputed by Telecom, over billing issues.

A provision in Telecom’s annual accounts of $A37.4 million for further operating losses associated with winding down loss-making Australian subsidiary Pacific Star will also cover contingent liabilities arising from a massive lawsuit by Telstra.

The Australian telco is suing Pacific Star for $A96 million, some of which is not disputed by Telecom, over billing issues.

A Telecom spokesperson confirmed last week that the $A37.4 million provision was expected to cover that.

Pacific Star, with an operating loss of $A50.2 million for the 12 months to March 1997, was one of several big-ticket items which affected an already flat result for Telecom. Telecom’s net earnings before one-off and abnormal items totalled $A189.1 million were $A770.5 million, up just 3.2% on the previous fiscal year. That reduced to $A581.4 million after accounting for those items.

The one-offs and abnormals also included:

q $A43.2 million after tax for the on-going restructuring programme;

q $A58.3 million after tax for making computer systems year 2000-compliant.

Performance was also affected by the $A41.7 million start-up costs associated with Xtra and cable home video and information services company First Media. Chief executive Roderick Deane says that while returns from the two may take some time to grow — even though Xtra claims 51,000 subscribers — Telecom is experiencing considerable flow-on benefits such as people subscribing for dedicated Internet access or ISDN capability.

Operating revenues for the year were $A3.106 billion, up 8.6% over 1996. The return on average capital funds was 30.7%, compared to 33.8% the year before.

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