Positivity flows at Telecom

By PETER GRIFFIN

A cascade of water from broken plumbing at an inner-city Sydney hotel wasn't enough to drown the enthusiasm of Telecom chief executive Theresa Gattung yesterday, as she delivered news of a third-quarter profit of $197 million.

The result bettered analysts' estimates of about $188 million and is a 17 per cent improvement on the same quarter last year. But it came on reduced revenue (down 5 per cent), with Telecom paring costs to the tune of 14 per cent for the quarter and increasing prices to achieve its first profit increase since the second quarter of last year.

Revenue was $1.3 billion and a 5c dividend would be paid out. Operating cashflow was up 17 per cent to $345 million.

A month into an extensive campaign aimed at wooing consumers onto the AAPT network, the acting chief operating officer for the division, Marko Bogoievski, said consumers seemed to be responding.

"Telstra and Optus have left quite a hole in the middle market. It's just the beginning - we've only four weeks of data to work with."

Overall, sales at the Australia business fell around 24 per cent to $329 million. Costs decreased 26 per cent. Earnings dropped 27 per cent to $8 million, as Telecom felt the after-effects of using price rises to thin its unprofitable customer base.

At home, revenue in Telecom's wireline business, from which it extracts the lion's share of its revenues and profits, grew 1 per cent. Telecom put some of the growth down to higher immigration.

Operating expenses were down 7 per cent for the quarter.

Gattung and chief operating officer Simon Moutter predicted there was further cost to squeeze out yet.

In the mobile sector, where Telecom faces stiff competition from Vodafone, revenues were up 4 per cent to $195 million. But earnings before interest and tax were down 16 per cent to $31 million.

Around 23 per cent of Telecom's mobile customers have now migrated to the 027 network, which has nearly 300,000 customers.

Xtra, the largest internet provider, continues to experience good growth.

At the end of March it had 420,000 customers, up 60,000 on the previous period.

Unfavourable regulatory decisions from the Telecommunications Commissioner had cost Telecom around $30 million, with the biggest decisions yet to come.

Gattung urged the regulator to leave well enough alone on the issue of opening Telecom's network to its competitors.

Negotiations on a content bundling and sharing deal with Sky were nearly complete.

"We don't want to compete with Sky or News, that's nuts. The model is to use our network for delivering content."

Gattung said Telecom would derive revenue from packaging interactive services around Sky content and that British operator BSkyB had proved a good model for bringing interactive services to pay TV.

"What we will deliver encompasses things you and I haven't dreamed about yet."

Telecom was on track to deliver an annual profit in the range of $670 million to $710 million, bringing it back on track after a massive write-down at AAPT last year saw it deliver its first loss.

Gattung tackles the US next week, mixing with fund managers in the US before again attending Microsoft founder Bill Gates' chief executives conference in Seattle.