Slowing economy no worry for telco

Telecom will take the slowing economy in its stride thanks to momentum in its fast-growing mobile and broadband businesses, says chief executive Theresa Gattung.

The telco yesterday said its net profit for the three months to September was $199 million, down 2 per cent on the corresponding 12 months.

Last year's first quarter was boosted by a $10 million one-off gain on the sale of retail stores.

"We have been very satisfied with this quarter, in particular the progress we've made in some of the key areas of growth - mobile, broadband and IT services," said Gattung.

Across the group, revenue grew 3 per cent and expenses 6.5 per cent compared with last year's first quarter.

With the telco in what it says is a heavy investment period, operating profit shrank by 2.4 per cent to $532 million, but Gattung said that decline was "quite significantly" less than in previous quarters.

Telecom had forecast it would return to growth in its operating profit in this financial year

"We think our results for the first quarter demonstrate we're on track to do that," said Gattung.

In New Zealand, Telecom added a net 72,000 new mobile customers during the quarter and gained a net 42,000 on its DSL (digital subscriber line) broadband services, with 38,000 being residential subscribers. Forty-five per cent of these were through its wholesale offerings to other internet service providers.

"Most significantly, just after the quarter ended we powered past our target of 250,000 residential customers two months ahead of schedule," said Gattung.

She said Telecom was confident heading into the key Christmas quarter, thanks to the momentum in its mobile division, and she was upbeat about the telco's ability to weather an economic downturn.

"We're probably less exposed to the domestic cycle than more retail-based businesses," she said.

While mobile and broadband were discretionary services, "the absolute momentum we've got going behind those we expect to see continue, regardless of whether the economy slows down slightly".

Gattung said Telecom remained comfortable with forecasts of full-year net profit of $852 million to $916 million, adjusted for International Financial Reporting Standards (IFRS).

Chief operating officer Simon Moutter said Telecom's New Zealand business was showing overall solid revenue growth,"albeit dragging with it significant costs, mainly through cost of sales".

New Zealand revenue was up 6.4 per cent to $1.13 billion and expenses 13 per cent at $598 million.

Calling revenue was flat, although the adoption of IFRS masked a decline consistent with that seen in recent quarters.

Moutter said Telecom's mobile business was "the big mover" in revenue, rising 13 per cent to $188 million. Broadband and internet revenue grew by 25.8 per cent to $83 million.

The company also gained revenue from its directories business and IT services, where it is now the country's top player.

Across the Tasman, revenue at Telecom's Australian businesses including AAPT fell 9 per cent to A$296 million ($318 million). Expenses at A$270 million were down by a similar factor.

The revenue decline reflected AAPT's decision to move away from selling mobile as a stand-alone product and concentrate on bundling mobile with other services.

The result saw Telecom's shares close 6c higher at $5.91 yesterday.