Telecom profits plunge, but cheers for new XT mobile

Telecom says voice traffic on its new XT mobile network was 20 per cent higher per subscriber than on its CDMA network, and data download traffic has risen 300 per cent. Pictured: Richard Hammond advertising the XT network.

Amid plunging profits, Telecom is congratulating itself on the performance of its new XT Mobile Network and its Gen-i operation for business customers.

Telecom reported a 43.9 per cent fall in full year bottom line net profit to $398 million, or in adjusted terms a 32 per cent fall in net earnings to $483m.

Adjusted earnings before interest, taxation depreciation and amortisation (ebitda), down 6.5 per cent to $1.77 billion, were in line with guidance.

Adjusted revenue for the year to June 30 dropped 2 per cent on the prior year to $5.58b, while adjusted expenses rose 1 per cent to $3.82b.

The decline in revenue was mainly due to falls in Retail and Australian unit AAPT, offset by growth in the Wholesale & International unit.

Chief financial officer Russ Houlden said external revenues for Retail fell $129m due to decreasing market share in access and calling and lower mobile prices for voice and data.

AAPT external revenue declined A$130m ($161.8m) as calling and resale revenues reduced in line with falls in the customer base, said Houlden.

Wholesale and International external revenues grew by $117m as local service, calling and broadband revenues lifted in line with the wholesale customer base.

The overall result was affected by large rises in depreciation and amortisation costs, and in net finance expenses, partly offset by a 37 per cent fall to $166m in adjusted income tax expense.

Houlden said a 20 per cent rise in depreciation and amortisation to $917m was due to such factors as a larger fixed asset base and shorter asset lives.

A 32 per cent rise in net finance expense to $201m was due to lower cash balances.

Telecom chief executive Paul Reynolds said the "monumental amount" of $100m in costs had also been taken out of the business in the past year.

He played down a net fall of 26,000 in Telecom's net mobile connections in the fourth quarter, saying 24,000 were prepaid customers, nearly all phones that were not being used.

Numbers had fallen for the two months before the XT network launch on May 29 and grown in the one month of the financial year after it.

Reynolds acknowledged it was too early to show the effect of XT, but was enthusiastic about the 165,000 customers on the network by last Friday.

"So there's been a very decisive shift to XT. It's very clear that the New Zealand marketplace has taken to the proposition," he said.

Of those on XT, 72 per cent were "higher value" postpaid customers. "Obviously that's what we've been targeting".

Also 34 per cent were new acquisitions. "Again what we had been targeting," Reynolds said.

Voice traffic on XT was 20 per cent higher per subscriber than on Telecom's CDMA network, and data download traffic was up 300 per cent.

"We'll see as the next quarter, and the quarter after comes, how the statistics stabilise. But there has been a decisive shift to XT, and a decisive rise in usage from the customers we see on the network."

On Gen-i, Reynolds described its performance in closing $446m in client contracts in the fourth quarter as "stellar".

"The highlight for us is winning corporate New Zealand in fixed line and IT services, and in this quarter in mobility," he said, adding that more large companies were in the pipeline to make the shift to Telecom.

Telecom said it was maintaining its guidance for adjusted ebitda in the 2010 financial year to a range between a fall of 1 per cent and a gain of 2 per cent, compared to 2009, subject to potential risks arising from the economic downturn.

Houlden said the 2010 guidance was a significant change in trajectory, with key drivers including a reduction in fixed line churn in retail, growth in core wholesale products, and returning to growth in mobile revenue while managing associated costs of sale.

A fourth quarter dividend of 6c a share was declared, compared to 8c last year.

Telecom's share price was down 4c to $2.63 at mid-afternoon.

- NZPA