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AAPT consumer sale raises Telstra prices

AAPT's new slimmer look has affected its earnings for the half year to 31 December 2010, according to parent company Telecom New Zealand's latest results.
Written by AAP , Contributor and  Suzanne Tindal, Contributor

AAPT's new slimmer look has affected its earnings for the half year to 31 December 2010, according to parent company Telecom New Zealand's latest results.

Telecom NZ last year sold AAPT's consumer arm to iiNet for AU$60 million. Although this put money in the bank, reduced volumes meant that wholesale terms which the telco had renegotiated with Telstra were less favourable, according to the company.

"Of course that takes some volume out of the business," Telecom NZ CEO Paul Reynolds said. "The wholesale contracts we have with Telstra, commercially negotiated, are volume related. Some of that discount went out on the back of the sale."

Earnings before interest, tax, depreciation and amortisation (EBITDA) of AU$38 million, down AU$18 million on the first half of the 2010 financial year.

Revenues had taken an AU$83 million dive because of the sale of the consumer division business and due to pricing pressures and churn in its business and wholesale divisions.

However, lower operating expenses helped bolster earnings: the company reduced headcount by 305 through restructuring and the sale of the consumer division and moved more customers on net.

AAPT CEO Paul Broad remained positive in his results statements, touted the carrier's completion of its inter-city network core upgrade program amongst other achievements.

"We have successfully divested the Consumer business from AAPT and completed the sale process, and the Wholesale and Business divisions continue their strong sales performance," he said in a statement.

"Our focus remains on creating a simpler, leaner business structure, including the imminent completion of our billing rationalisation program."

He said that the telco would look to accelerate sales growth in data and a new Session Initiated Protocol voice product for business and wholesale markets.

Overall, Telecom is reporting a 0.5 per cent fall in adjusted half-year EBITDA to NZ$868 million (AU$664.93 million) when compared to the same period last year.

Adjusted revenue for the six months to the end of December was down 3.3 per cent from a year earlier to NZ$2.58 billion (AU$1.98 billion), while adjusted net earnings fell 35 per cent to NZ$158 million (AU$121.04 million).

Adjusted expenses, at NZ$1.72 billion (AU$1.32 billion), decreased by 4.7 per cent, reflecting lower mobile cost of sales and ongoing efficiency improvements, the company said today.

Telecom NZ's Reynolds said a continued strong focus on operational excellence and cost control had helped offset increased tax and ongoing regulatory impacts.

Telecom remained on track to deliver its full year earnings guidance and had improved the capital spending outlook, now expecting full year capex to be within the NZ$950 million (AU$727.75 million) to NZ$1 billion (AU$766.05 million) range for the financial year, down from NZ$1 billion (AU$766.05 million) to NZ$1.1 billion (AU$842.65 million) indicated previously.

The XT mobile network continued to grow strongly and Telecom now had more than 1 million customers on XT, representing around 45 per cent of its total mobile base, and 71 per cent of its mobile revenue, Reynolds said.

The tax expense of NZ$87 million (AU$66.65 million) in the latest half year was NZ$53 million (AU$40.6 million) higher than a year earlier, mainly due to the impact of changes in tax legislation, the company said.

The XT customer base rose to 1.01 million connections at 31 December, 298,000 more than on 30 June.

For the 2011 financial year, Telecom is targeting a payout ratio of 90 per cent of adjusted net earnings. In accordance with that policy, a second quarter dividend of 3.5¢ per share was declared.

Telecom reported a bottom line net profit of NZ$164 million (AU$125.63 million) for the half year, down 32.2 per cent from a year earlier, on revenue down 2.6 per cent to NZ$2.6 billion (AU$1.99 billion).

Telecom full year adjusted net earnings guidance of NZ$330 million (AU$252.8 million) to NZ$370 million (AU$283.44 million), does not reflect any impact from the government's ultra-fast broadband initiative, which the company said was "likely to reshape the industry".

In mid-December, government agency Crown Fibre Holdings said Telecom had been chosen to take part in prioritised negotiations for the NZ$1.5 billion (AU$1.15 billion) ultra-fast initiative in much of the country.

Last week, the government said it had started commercial negotiations with Telecom and Vodafone to provide improved rural broadband services, after the two companies submitted a joint proposal for the NZ$285 million (AU$218.32 million) rural broadband initiative.

Telecom's network unit Chorus reported a NZ$6 million (AU$4.6 million) rise in EBITDA to NZ$391 million (AU$299.53 million) for the half year, which the company said now had one year and fewer than 1000 cabinets to go in its nationwide fibre-to-the-node program.

The Wholesale and International operations had a 57.8 per cent fall in half-year EBITDA to NZ$46 million (AU$35.24 million).

Telecom Wholesale acting chief executive Nick Clarke said wholesale external EBITDA rose 9 per cent, but fully-traded EBITDA was down due to internal cost allocations, a changing product mix and broadband repricing.

Strong access and broadband connection growth continued, including 28,000 new access connections and 30,000 new broadband connections in the half year.

Telecom Retail, which provides fixed line, mobile and internet services to consumers and small and medium businesses, reported a 36 per cent rise in half-year EBITDA to NZ$240 million (AU$183.85 million).

The increase in EBITDA reflected lower mobile cost of sales, a focus on removing cost from the business and improved broadband pricing from Wholesale, Telecom retail chief executive Alan Gourdie said.

Gen-i, which provides telecommunications for business customers, saw EBITDA rise 6.1 per cent to NZ$105 million (AU$80.44 million) driven by IT services growth, decreasing overhead costs and decreasing internal costs, which were falling in line with external telco revenues. However, Australian revenues took a 9 per cent hit due to the company's Commonwealth Bank deal coming to a close.

Mobile connections continued to grow, by around 5 per cent in the first half of the year, and voice and data revenues also improved, up 5 per cent, Gen-i chief executive Chris Quin said.

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