2degrees chief executive Mark Callander. Photo / Michael Craig
Privately-held 2degrees says its operating earnings increased by 16% (excluding one-off-gains from the FY23 70% sale of its celltower network) to $339m in the year to June as revenue rose by 7% to $1.34 billion.
The telco made a net loss of $3.1m from its net profit of $665m in FY23 - a period that included a net $620m gain from the tower deal. Without the celltower proceeds, the firm would have booked a net loss of $38m last year.
The adjusted losses for both years were pinned on costs associated with the tower sale plus a three-year plan to integrate 2degrees and Orcon, which merged in 2022.
Chief executive Mark Callander attributed the operating earnings and revenue gains, in part, on his firm’s increasing ability to compete for big contracts at the top end of town, including “key government and enterprise customers”. Historically, 2degrees has been more centred on consumer and small business firms.
Callander says the momentum has continued into the new financial year with 2degrees and security partner Palo Alto Networks winning a contract with Crown-owned Network For Learning (N4L) that will see the pair supply phone, broadband and managed network services to 2542 schools through to 2031.
Incumbents Spark and Fortinet will be replaced from March next year (although Spark was at least able to claim bragging rights for a huge new contract with Transpower). N4L spends some $33m per year on telco and network services.
Broadband revenue increased to $415.9m from $371.6m, mobile was up to $555m from $509.0m and energy was up to $122.7m from $109.3m, 2degrees said (the group includes a small power retailer, the former Switch Utilities, bought in 2017).
Cashow from operating activities was up $59.0m on the prior year in the latest to $169.0m operating expenses were reduced by $15.4m (5%), the firm said.
2degrees provided the Herald with a summary of its earnings. The telco’s accounts have been filed with the Companies Office and are due to be published in the next few days.
Rival One NZ has recently been talking up its “celltower in the sky” partnership with SpaceX-owned Starlink and its Direct to Cell service − which is set to launch later this year or early next year, eliminating mobile blackspots for text and, sometime in 2025, voice and data.
SpaceX received a commercial licence for Starlink direct to cell from the US Federal Communications Commission on Wednesday, clearing its final regulatory hurdle for its new global service.
The Elon Musk-owned firm also says it has just one more Falcon 9 launch to go before it reaches the minimum number of Direct to Cell-capable satellites required to launch its new service (the Herald understands the minimum constellation is close to 300 satellites, with the number increasing to around 1000 by the end of next year to facilitate voice and data).
2degrees is lining up its own satellite-to-mobile phone service with putative Starlink rival Lynk. Callandar was on Vandenberg Space Force Base in California earlier this year to see two of its satellites being launched by SpaceX and customer trials are underway but there’s no commercial launch date set. Spark has also thrown in its lot with Lynk.
One NZ says it dismissed Lynk as being not up to snuff. Last week, a Lynk spokesman told the Herald the firm had five satellites in orbit, with another five on the way. It’s aiming for 70 next year.
2degrees has not in turn bagged Starlink’s Direct to Cell, however.
One NZ might have ponied up an undisclosed amount to be the exclusive Starlink Direct to Cell partner in NZ as the service launches (Musk said US partner T-Mobile will have a 12-month jump on the pack in that country before the service is extended to all carriers; One NZ has said it could pay more to extend its exclusivity period if it chooses).
But Callander says if you fast-forward five years to when Starlink, AST, Lynk, Amazon’s Kuiper and others have more Direct to Cell-capable satellites in orbit, “Operators will potentially have a range of relationships with various satellite providers.
It’s just like international roaming partnerships. Today we have agreements with the likes of Verizon and AT&T. So, satellites in space to serve areas where there is no coverage today is just another extension of these types of relationships to meet our customers’ needs.”
The 2024 financial year was a mixed one for the sector.
Spark reported a below-guidance result in August as its operating earnings fell 33% to $1.16b as its revenue fell 14% to $3.86b on weakness in IT services in government and enterprise. It announced a plan to cut $50m or 10% from its labour costs, putting hundreds of jobs on the line. Further earnings and dividend downgrades followed in October on the eve of the telco being dropped from the market cap-based MCSI index.
But network operator Chorus saw a 4% jump in ebitda to $700m as its revenue rose 3% to $1.01b. With the capital-intensive UFB rollout behind it, Chorus increased its dividend by 12% - well above market expectations - and said the profit payout would likely continue to rise.
And One NZ - owned by NZX-listed Infratil - saw its first-half operating earnings rise 9% to $304m as its operating costs fell by $14m following a restructure last year, although its first-half revenue dipped to $940m from the year-ago $963m. Its full-year operating earnings guidance was maintained at $580-620m.
FY23 was 2degrees’ first full financial year in its current form.
A complex 2022 deal saw Australian investment bank Macquarie Group and Australian superannuation fund Aware Super form a joint venture, called Voyage (not to be confused with Voyager Internet), which took control of Vocus NZ, which traded as Orcon (and included the Orcon, Slingshot, Flip, 2Talk and CallPlus brands in its stable, among others).
Voyage, in turn, bought 2degrees from its US owner Trilogy, then (stay with me) merged it with Vocus NZ on June 1, 2022 to create the company that today trades as 2degrees. Vocus NZ CEO Callander took control of the combined operation.
The net result is that 2degrees - co-founded by scrappy entrepreneur Tex Edwards and often running lean during its early years - now has deep-pocketed owners.
Chorus has recently been running attack ads against fixed-wireless broadband, highlighting possible congestion during peak periods.
“From our perspective, wireless broadband got a really critical role to play in the market, particularly as household spending becomes challenged,” Callander said.
“Fixed-wireless offers a cost-effective alternative. Chorus are entitled to do what they like. From my perspective, they appear to be promoting awareness of fixed-wireless. It’s good for the category. So you’re not really concerned about it.”
2degrees was recently accused of “intentionally taking on large contracts at a loss” to expand its government and corporate business - claims that staff at rivals have repeated to the Herald.
“It’s heartening to hear that when the incumbents are losing cornerstone customers, they don’t understand how it could happen,” Callander retorted.
“We win based on a range of factors, including the quality of our network now. We have network equivalence with the incumbents. We’re a value player. So in tough value will stand up against our competitors.
“And lastly, we’re a software company, so it’s more of that tools that we’re putting in front of our customers and potential customers that’s winning us that business. So the fact our competitors are calling out the way we’re doing it is great.”
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
He was made bankrupt after a body corporate took the dispute to court.