Telecom to change name, enter internet TV business

Telecom announces it is attacking the online content market with the launch of ShowmeTV.
Written by Rob O'Neill, Contributor

Telecom New Zealand is to become Spark.

The company managed to bury its own news of a flat net profit for the half year ended 31 December today with two major announcements, a change of brand and the launch of a new internet TV business.

The spark flies

Chief executive Simon Moutter said the investment in digital services is essential to future growth.

"Notably, we have decided to enter the internet TV market, with a standalone and high-quality internet TV brand, ShowmeTV, to be launched later in the year," he said.

Moutter said the migration of entertainment to the internet is creating significant disruption to current broadcast TV business models and opportunities for new online businesses.

"The rapid growth of better broadband via fibre and VDSL means watching TV via streaming over the internet is now a much more viable option for New Zealanders. We believe the time is right to enter this market and provide New Zealanders with exciting new choices when it comes to watching video entertainment.” 

Moutter said Spark better reflects the company’s new direction.

“As a company we’ve moved far beyond the home telephone. Spark better represents what we are today – it is all about digital services, fibre, mobile, data, cloud, entertainment, apps, or whatever new technology is around the corner," he said.

Telecom announced net profit after tax of NZ$167 million for the half year ending 31 December 2013. Chairman Mark Verbiest said Telecom has been focused on a long-term business improvement strategy and is gathering momentum.

“Our investments in revamping our mass market brands, Telecom and Skinny, have delivered greater cut-through in key markets, he said. "This has given us the conviction to move beyond the Telecom name, and better reflect our digital services capability and future focus.

"Later this year, we intend to change our company name and core customer brands to Spark.” 

Telecom has for several years travelled under a "spark" image but is now changing name to match the graphic.

Telecom said earnings were flat, while underlying indicators and revenue performance, especially in mobile, were encouraging.

However, the ongoing market decline in legacy fixed data and voice, together with the choices made during 2013 to put market share gains ahead of short-term financial performance, has impacted earnings.

That push for share has seen Telecom gain 200,000 mobile customers in the past 12 months.

“We expect to see the positive lead indicators from the half year begin to flow more into our financial results from the second half onwards and into the 2015 financial year,” said Verbiest.

Total operating revenues from continuing operations declined 3.0% to NZ$1.84 billion, largely attributable to a 9.2% decline in fixed line revenues. Mobile revenue was up 5.8% while operating costs for continuing operations fell 2.1%.

Earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations were down 5.8% while net earnings from continuing operations were down 12.5%. 

Capital expenditure for continuing operations was up 18.2% to NZ$266 million for ongoing re-engineering, upgrades of the company's core data transport network and mobile network investment, particularly in 4G LTE.

Moutter said Telecom has continued to make "huge" investments in New Zealand’s digital networks, launching 4G mobile underpinned by a brand-new core data transport network, building more data centre capability and buying digital dividend 700MHz spectrum at auction.

Telecom has also committed NZ$149 million to four lots (2 x 20MHz) of newly available 700 MHz band radio spectrum to enable  faster and better 4G mobile coverage for less populated parts of New Zealand.

Regulator the Commerce Commission is still deciding whether or not the purchase of the fouth lot can proceed. That decision will be followed by an auction round to determine the allocation of positions in the band.

"We have sold the [Australian] AAPT business in Australia to focus all our efforts on getting it right for New Zealand customers," he said.

During the first half, plans were also announced to build new greenfield data centres for Telecom's Gen-i IT services business in Auckland and Wellington and a new data centre was opened in Christchurch, building on the company's data hosting capabilities following the acquisition of Revera last year.

Gen-i will be rebranded as Spark Digital Solutions when Telecom shifts to its new name. 

Telecom said an ongoing programme to re-engineer the IT stack for the business is progressing well, with the release of IT improvements on target for the second half of this financial year. The first release will focus on pre-paid mobile.

Telecom's nationwide WiFi network, primarily using revamped phone booths, now has over 900 hotspots and 300,000 registered users, the company said.

Moutter said Telecom anticipates an improved performance in the second half of this financial year, with broadband revenues beginning to stabilise, mobile growth continuing and our Turnaround Programme delivering tangible free cash flow improvements.”

Adjusted EBITDA from continuing operations for the full year is expected to be in the range of NZ$925 million to $945 million, excluding the sale of AAPT and rebranding costs.

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