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Spark sees more upside as upsell to unlimited mobile data plans spur sales

Wednesday 21st February 2018

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Spark New Zealand expects to reap more gains from its unlimited mobile data plans after the country's biggest telecommunications company attracted customers and generated more revenue from those users. 

Auckland-based Spark's mobile revenue rose 8.8 percent to $635 million in the six months ended Dec. 31, accounting for almost 35 percent of the carrier's revenue and almost twice the $341 million derived from broadband, its second-biggest earner. 

Mobile connections rose 3.6 percent in the half to 2.44 million, putting it within spitting distance of Vodafone New Zealand's 2.49 million connections, while average revenue per user (arpu) rose 1.8 percent to $22.28, the first gain in two years. That was largely down to customers upgrading to high-value unlimited data plans, and gains on its online-only Skinny Direct brand.

Chief executive Simon Moutter told analysts on a conference call Spark's unlimited mobile data plans were rolled out with the view to drive higher margins. 

"That might sound counterintuitive because the assumption is always there will be an enormous amount of data downloaded and that would undermine the economics," Moutter said. "Customers moving up to that price point will typically come from reasonably high usage already. Usage goes up a bit but not enormously." 

He says the product is more about providing price certainty than encouraging costly data dumps and that "it does seem to be accretive as we expected and the profitability of those customers is strong." 

That won't last forever given the telecommunications sector is "an industry that commoditises and at some point, our competitors will move to closely to match some of those products," he said.  

Spark's capital spending on mobile rose 20 percent to $89 million in the half as it deploys its single radio access network and long-term evolution sites to boost capacity and coverage for its wireless broadband. That incorporates the roll-out of the 4.5G network around New Zealand, which is live on 38 sites in 30 locations and reduces Spark's delivery cost per gigabit. 

The company hasn't offered any guidance on what it might cost to build a 5G network, with chief financial officer Dave Chambers today saying "we're doing some work around that at the moment to shape up our view" and wants "clarity around what the standards will be and what the process around spectrum will be.

Spark scoffed at suggestions by fixed line operator Chorus last year that the government should sponsor the 5G network build in the same way it backed the ultrafast broadband network. 

The strength of the mobile earnings is making up for a tight broadband market, which Moutter again said was a "tough place to make any money" and where the price discounting has even drawn in Spark through its Skinny and Big Pipe brands. Against that backdrop, the country's third-biggest internet service provider, Vocus New Zealand, is up for sale. 

"Consolidation is going to be part of improving the state of that market," Moutter said. "We'd like to play a role in that but naturally others will also be thinking the same way. Vocus being potentially part of that consolidation move is in my view the logical result, given the stress in the market today."

Spark shares fell 2 percent to $3.385, having dropped 4.8 percent so far this year. 


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