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Telecom: Strong Performances in Broadband, Mobile

Telecom Delivers Strong Performances in Broadband And Mobile in Third Quarter

6 May 2005

Overview of Group results

Nine months ended (NZ$m)

31 March 2005 / 31 March 2004 /Change %

Operating revenues: 4,192 / 4,010 / 4.5

Abnormal revenue: 68 / 28 / 142.9

Total revenue: 4,260 / 4,038 / 5.5

Reported EBITDA*: 1,748 / 1,781 / (1.9)

Adjusted EBITDA: 1,711 / 1,741 / (1.7)

Reported net earnings: 650 / 597 / 8.9

Adjusted net earnings: 607 / 557 / 9.0

Reported earnings per share: 33.4c / 31.1c / 7.4%

* Earnings before interest, taxation, depreciation and amortisation.

Note: Adjusted figures exclude abnormal items

Note: All comparisons in the above table and commentary below relate to the nine months ended 31 March 2005 compared with the same period in 2004. All figures are expressed in New Zealand dollars unless otherwise stated.

Telecom today reported net earnings after tax of $650 million for the nine months to March 31, 2005, an increase of 8.9% on the corresponding period in 2004.

Reported earnings during the nine months included five abnormal items:
- (Q1) - A $10 million gain from the sale of 15 mobile business retail stores to the Leading Edge Group in September 2004.
- (Q2&3) - A $9 million gain on the repurchase of $300 million of convertible notes in November 2004 and February 2005– the notes were issued in 2001.
- (Q3) - A gain on sale of approximately $8 million from the sale of Telecom’s minority stake in United States satellite operator Intelsat.
- (Q3) - A one-off abnormal charge of $31 million ($21 million net of tax) recognised to reflect adjustments to intercarrier provisions and accruals relating to AAPT.
- (Q3) - Telecom has booked income of $41 million ($37 million net of tax) in relation to contingent credit support provided to Southern Cross lenders.Adjusted net earnings for the nine months to 31 March 2005 were $607 million, an increase of 9.0%.

Telecom Chief Executive Theresa Gattung said the Group’s earnings performance reflected good progress in the company’s key focus areas, with mobile, broadband and ICT all performing strongly over the nine month period.

“In this quarter it was pleasing to see strong revenue growth in these three key areas of investment. This progress is offsetting declines in calling revenues as Telecom’s whole focus moves to new and emerging areas.

“In broadband we achieved our strongest month ever in March with 19,618 gross connections and uptake remains at record levels despite seasonably slow months in January and February. We remain on track to reach the target of 250,000 residential customers by the end of December 2005,” Ms Gattung said.

“It was another strong quarter for mobile as momentum continued to build with our T3G mobile services. During the quarter we launched Push2Talk with uptake ahead of expectations. Video messaging continues to be popular and we now have more than 30,000 video streaming devices in the market. New video-capable phones will be launched in the coming months. Last month we launched video clips featuring Super 12 rugby highlights, news and entertainment services including movie trailers and music. In the first week video clips attracted more than 75,000 downloads.

“Telecom’s Australian business remains stable, with continuing progress in the consumer business with full service offerings involving calling, internet and mobile revenues while the business market remains ultra competitive.”

The Group result was also driven by strong revenue growth, lower net interest expense due to reduced debt levels and lower depreciation.

“It was pleasing to note the extra sales that Southern Cross Network achieved during the quarter, which further enhances the financial outlook of the business.”

New Zealand

Operating revenue was $3,210 million, an increase of 8.9%. Higher operating revenues for cellular and other mobile, data, internet and solutions, and interconnection were partly offset by declines in calling and local service revenues. The trend underlined the transition from traditional voice services to broadband, mobile, IT and data.

Local Service

Total revenue was $798 million, down 1% while residential access lines were stable on 1.4 million.

Calling revenue comprises national calling (national calls, calls to mobile networks and national 0800) and international calling (calls out of and into New Zealand and transit call traffic between destinations worldwide)
- Total calling revenue was $677 million, a decrease of 9.1%
- National calling was $471 million, a decline of 6.2%
- International calling was $175 million, a decrease of 15.5%, however this was partly offset by a reduction in the cost of sales

Total calling revenue decreased due to lower call minutes and lower average prices. The impact of email, internet, mobile substitution, text messaging and competition contributed to lower call minutes.

Telecom’s Anytime plans launched in August 2004 continued to see strong uptake. The lower calling prices available under Anytime have also impacted calling revenues.

Interconnection revenue, which includes termination of calls on both fixed and mobile networks, rose 14.2% to $121 million, primarily due to mobile interconnection revenues from text messaging growth.

Cellular and Other Mobile revenue is derived from voice and data services on Telecom’s 027 (CDMA) and 025 (TDMA) networks.
- Total cellular and other mobile revenues increased 15.2% to $524 million
- Voice revenue increased 4.6% to $383 million
- Data revenue was $77 million, an increase of 113.9%
- Total connections at 31 March, 2005 were 1,527,000 – an increase of 14.2% year on year (March 2004)
- Net mobile connections for the quarter ended 31 March 2005 were 64,000, a rise of 4.4% for the quarter
- Total ARPU (average revenue per user- monthly) including interconnection for the nine months to 31 March 2005 grew 1.8% to $51.20

Data, Internet and Solutions
- Total data, internet and solutions revenue increased 44.9% to $745 million.
- DSL JetStream revenue increased 57.6% to $104 million
- At 31 March 2005 Telecom had 219,000 broadband connections, of which 169,937 were residential.
- DSL JetStream connection growth for the March 2005 quarter was 47,132 new connections and 51,190 in total when including both residential and business customers (these figures include 6,000 connections which were on 128Kbps plans who have moved to higher speed plans, but exclude 11,000 customers who still remain on 128kbps plans)
- Total data revenue was $427 million, an increase of 13%
- Solutions revenue growth increased by $184 million for the nine months ended 31 March 2005. Solutions’ revenue growth was significantly boosted by the acquisitions of Gen-i and Computerland during the period.


Directories revenue grew by 3.3% to $188 million, driven by volume increases.


Australian performance is expressed in Australian dollars, including comparisons with prior corresponding periods.

Operating revenues were A$962 million, a decrease of 1.9%

EBITDA was stable on A$109 million

Australian consumer comprises AAPT’s residential and small business fixed line, mobile, and Internet operations.
- Total revenue was marginally higher (0.2%) at A$459 million
- Segment contribution (revenue less directly attributable costs) increased 17.4% to A$108 million

The fixed line customer base of 454,000 at 31 March 2005 increased by 7.8% compared to 31 March 2004. AAPT is now reporting on “active” customers (these are customers that have made a national, fixed to mobile or international call within the last three months). The total number of customers buying bundled services at 31 March 2005 was 117,051, an increase of 64,021 compared with a year ago. Approximately 26% of the customer base now purchase multiple products. AAPT had approximately 100,000 Internet customers as at 31 March 2005.

Australian business comprises AAPT’s operations in business, corporate, government and wholesale market, and TCNZA.
- Total Revenue was A$503 million, a decrease of 3.8%
- Operating expenses were A$340 million, down from A$371 million (8.4%)
- Segment contribution (revenue less directly attributable costs) was A$163 million, up 7.2%

Revenue declined slightly due to intensive competition across most product lines. However this was partially offset by growth in value added services and general volume growth. AAPT continues to focus on the small to medium sized market where there are stronger future growth opportunities.


Telecom will pay a fully imputed dividend for the quarter ended 31 March 2005 of 9.5 cents per share on 10 June 2005 in New Zealand and Australia and on 17 June 2005 in the United States. The books closing dates are 27 May 2005 in New Zealand and Australia and 26 May 2005 for New York.

Southern Cross

During the quarter Southern Cross Cable Network secured additional sales of approximately US$176 million. It is expected that the collection of receipts from the new sales over the next three years should lead to repayment of the outstanding bank debt, sponsor support fees, and provide interest on shareholder advances and the repayment of a small proportion of shareholder advances

Telecom has booked income of $41 million ($37 million net of tax) in relation to contingent credit support provided to Southern Cross lenders in the third quarter ended 31 March 2005.

Telecom will continue to further accrue revenue in respect of its contingent credit support for Southern Cross until the existing senior bank debt is repaid.

Capital expenditure increased by $97 million to $498 million for the nine months to 31 March 2005. For the 2005 financial year, forecast capital expenditure is $700 million. For the 2006 financial year, Telecom currently expects total capital expenditure of approximately $750 million.

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