Telecom puts a brave front on a disastrous result

Friday 16th February 2001

By Rob Hosking

Telecom's half-yearly result showed a 26% drop in net profit but the tide is already turning, chief executive Theresa Gattung said yesterday.

Telecom's drop in profit - down by $106 million for the six months to 31 December - was due largely to the interest costs from buying Australian carrier AAPT, she said. Net interest costs were up $69 million - slightly more than double for the same period in 1999.

"But we are beginning to see a positive trend, and margins beginning to grow again in the second quarter of the financial year," she said.

Other factors in the drop were the rise in cost of sales, particularly in areas like mobile, but Ms Gattung said this would improve over the next few months. The company had to move aggressively to attract new mobile users over the past six months as part of the build-up to the launch of its CDMA network later this year.

"We had the largest rise in the number of mobile users in the past three months of 2000 that we have ever had," she said. However, the revenue from those new sales was not coming through in the financial result yet.

While mobile revenue is down $3 million (or $1.1%) and the cost of sales for mobile phones is up 8.4% to $88 million, the company is reaping the benefits elsewhere from the increased use of mobiles. The revenue from calls to cellphones is up $17 million to $149 million. Not only is this an improvement in monetary terms but also the company's gross margin on those calls is up 12.1% to $111 million.

The main growth area continues to be the internet. Revenue rose 15.2% to $37 million and the number of customers at Telecom's internet provider Xtra was up more than a third.

Moreover, those customers at Xtra - which remains New Zealand's largest ISP - are staying online longer. Dial-up hours rose just over two-thirds to 33.1 million and the average customer stayed online 23.1 hours a month - up nearly a third on the same period in 1999.

"The increase in internet revenue has been impacted by the rise of free ISPs," Ms Gattung said. However, that threat was now receding - most companies which had adopted the free internet model had either stopped acquiring new customers or moving back to the pay for access approach.

National call revenue continued its decline - down 8.4% for the six months and 9.1% for the last quarter.

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