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Vodafone stems customer bleeding as losses deepen

Vodafone Hutchison Australia's turnaround strategy is working to stem its customer losses for the first time in four years, with the company seeing its customer loss rate dropping to 46,000 for 2014.
Written by Leon Spencer, Contributor

Vodafone Hutchison Australia (VHA) is beginning to see some results from the turnaround plan it has been investing in since 2013, with the company thinning its customer losses to just 46,000 for the financial year ending December 2014.

In its annual results, published on Wednesday, Hutchison Telecommunications (Australia) Limited (HTAL) revealed that Vodafone Australia had gained 90,000 new customers in the second half of the year after losing more than 130,000 in the first half.

The company said that during 2014, it had started to see a stabilisation of subscriber numbers, the commencement of an upgrade to its core network, a strong improvement in customer experience, and the launch of an "ambitious" retail expansion program, including 30 new Vodafone-owned stores, and a partnership with electronics retailer Dick Smith.

According to HTAL, VHA's active customer base stabilised at just over 5.3 million, after regaining customers in the second half. HTAL attributed this second-half customer gain to strong iPhone sales and its Red plans.

"These results are in line with our expectations for 2014," said Vodafone Australia chief financial officer James Marsh. "Our performance is steady, and we're now in a position where we expect the business to grow.

"The decline in customer revenue for 2014 reflects customer losses in 2013, but we're confident we've now reversed that, and we expect to see customer numbers continue to grow in 2015," he said.

By comparison, the financial year ending 2013 saw the company lose 1.23 million customers. In fact, the company has lost hundreds of thousands of customers every year since FY10, when it gained 681,000.

For the six-month period ending 2014, rival telco Telstra reported that it had added 366,000 retail mobile services, and Optus revealed that it had gained 100,000 mobile handset customers during the quarter ending December.

Meanwhile, HTAL, which is listed on the Australian Securities Exchange and operates VHA with Vodafone Group as a 50/50 joint venture reported deepening losses for the full year ending December 2014.

The company reported an AU$285.5 million loss for the 12-month period, well over the AU$230 million loss it reported the previous year, according to its annual results released on Wednesday.

HTAL's share of VHA's net loss included in its results for the period was AU$301.8 million for the year ending December 2014, compared with a net loss of AU$245.6 million the previous year.

This equates to a total net loss of AU$603.6 million for both HTAL and Vodafone Group's dual share of VHA.

In a statement (PDF), HTAL told investors that its losses for 2014 included accelerated depreciation on network assets, which were heavily invested in as part of the company's strategic plan to build an "expanded and resilient network".

"There are very encouraging signs that management's focus on turning the company towards profitability is working," said HTAL's chairman Canning Fok. "With the continuing geographic expansion of the network and an increasing retail presence across the country, I am confident VHA is well positioned for growth.

"I am confident that VHA has a strong management team, led by chief executive officer Iñaki Berroeta, who has now been at the helm for 12 months," said Fok. "HTAL remains committed to its investment in the company and will continue to support VHA's business in Australia."

The company said in its annual report that during the period, competition, innovation, and transformation within the Australian telecommunications sector maintained a rapid pace.

With the uptake of 4G devices in Australia among the highest in the world, the demand for mobile data doubled during the year, the company said. In July, VHA began refarming its low-band 850MHz spectrum from 3G to its 4G network, and now has over 2,000 long-term evolution sites on air, with its 4G coverage estimated to reach 95 percent of the Australian metropolitan population.

HTAL's share of VHA's total revenues fell by 1.6 percent to AU$1.75 billion from the previous year's AU$1.78 billion. This equates to total 2014 revenue for VHA of AU$3.5 billion.

Meanwhile, HTAL recorded revenue from operating activities of AU$1.1 million, a decrease of AU$14.8 million from the previous year, as a result of decreased shareholder loans provided to VHA. HTAL's revenue from ordinary activities represents interest income received on loans to VHA.

The deepening losses for both VHA and HTAL follow Berroeta's comments earlier this month that VHA had exited its turnaround plan, and is gaining momentum for growth in customer numbers in 2015.

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