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Telecom revenue falls 7.7%
Fri, 7th May 2010
FYI, this story is more than a year old

CEO Paul Reynolds says increased competition, economic slowdown, regulatory interventions and XT network issues are behind the drop in revenue.

Adjusted earnings before interest, taxation depreciation and amortisation (EBITDA) for the nine months to 31 March 2010 were down 1.9% on the same period last year. Adjusted revenue fell by 7.7%, to $3,936m, while adjusted operating expenses fell to $2,600m, a 10.4% decrease on last year.

Paul Reynolds, Telecom CEO, said, “Telecom delivered a range of positive outcomes in the quarter, including 128,000 growth in XT connections, and 7% mobile revenue growth in Gen-i. New Zealand’s broadband speeds are now measurably faster than Australia and Singapore, and our cost-out programme remains on track.”

He continued, “Full year earnings guidance has been maintained. This result has been delivered in a very challenging operating environment, including increased competition, the continued impact of the economic slowdown, further regulatory interventions and issues with our XT network. With the results of the independent review of XT now before us, our focus is on further improving the resilience of the network and translating that effort into further growth in customers.”

Reynolds also announced a review of Telecom’s international wholesale business, “Following a strategic review of Telecom’s international wholesale business, we have separated it into its voice and data components. We are now considering strategic options for the voice component of this business. Options being considered include merger, divestment or retention.”

Speaking about further regulation seen in the industry Reynolds said that they only added to an already very complex model. “In addition, while preparing for the radically different, fibre-based world envisaged by the government’s UFB initiative, we are continuing to deliver an operational separation model designed for a copper world. Our strong focus is therefore on aligning this copper world regulation with a fibre world, to deliver the best result for Telecom shareholders and New Zealanders.”

The impact of the slowdown in the New Zealand economy cost Telecom $10m during the quarter, making the year-to-date impact up to $30m. “The impact of the economic slowdown is evident in the market-facing business units, with the impact for Gen-i seen in several industry segments, including real estate, manufacturing, finance and business services,” added Russ Houlden, CFO, Telecom who said the impact for retail was mainly felt in the small and medium enterprise sector.

Chorus reported EBITDA of $188m for the quarter, a 1.1% increase compared to last year. “Local services revenues are increasing as UCLL grows and internal revenues have also increased as wholesale consumes more cabinetised lines,” said Mark Ratcliffe, CEO, Chorus.

Wholesale and International reported EBITDA of $60m for the quarter, a 10.4% decrease. “During the quarter a major Ethernet backhaul deal was secured,” said Matt Crockett, CEO, Telecom Wholesale. “Two new customers were secured as future mobile virtual network operators (MVNO) on our WCDMA network and we saw higher PSTN and broadband connection growth.  EBITDA was down as the rate of increase of internal costs outpaced revenue growth.”

Telecom Retail reported EBITDA of $113m for the quarter, a 0.9% increase over last year’s figure. “A focus on cost means that internal expenses fell faster than operating revenues, which resulted in earnings growth,” said Alan Gourdie, CEO, Telecom Retail.

Gen-i reported EBITDA of $58m for the quarter, a 1.7% decrease on last year. “A continued focus on lowering costs, and growth in mobile and Australia helped to offset the decline in traditional telco revenues,” said Chris Quin, CEO, Gen-i.

Telecom said it was maintaining its guidance for adjusted EBITDA in FY10 to be between -1% and +2% compared with FY09. It is now expected to be near the lower end of the range. For FY11 it will target a payout ratio of 90% of adjusted net earnings.