2degrees posts $76.8m loss

Eric Hertz, chief executive of Two Degrees Mobile. File photo

Two Degrees Mobile, the country's newest mobile phone operator, made a loss of $76.8 million last year as it continued to invest funds in building a network to rival incumbents Telecom and Vodafone New Zealand.

The phone operator made a gross profit of $38.2 million in the 12 months ended December 31 on revenue of $107.6 million, according to financial statements lodged with the Companies Office.

The previous statements were for the nine months ended December 31 2009.

Shareholders Trilogy International New Zealand LLC, Tesbrit B.V. and Hautaki Trust have backed up the company, pumping in $85.9 million of share capital over the year.

In the first six months of 2011, they stumped up a further US$24.3 million.

2degrees spent $18.1 million, about 15 per cent of total expenses, on marketing and advertising in 2010 as it aggressively fought for customers, having entered the market in August 2009.

In March this year, the company said it had managed to corner 11 per cent of the nation's 5.237 million mobile phone users, eating into the Vodafone-Telecom duopoly.

At the same time, chief executive Eric Hertz said the company would spend another $100 million to boost the size and capacity of its network, taking total capital expenditure to $400 million.

That funding will mostly come from vendor financing over a 24-month period, according to the financial statements.

The value of 2degrees' telecom network and equipment was $139.9 million at the end of last year, before a depreciation charge of $19.6 million in the period.

Accumulated depreciation of $33.4 million meant the carrying value was $106.5 million at the end of the year.

2degrees grew out of a controversial government decision 10 years ago to give Maori the right to buy a third generation radio spectrum frequency at a discounted price.

The remaining life of the spectrum management rights is about nine years.

In the first three months of this year 2degrees was notified about a "commercial dispute in relation to certain interconnection fees from a business counterparty," it said in a note.

Interconnection fees are what operators charge each other for carrying rivals' calls on their networks.

The company is looking into the claims, and expects to settle the dispute in the second quarter, it said.

Last month, the Commerce Commission's Telecommunications Commissioner Ross Patterson recommended regulating mobile termination rates, the fee charged for ending a call on a rival network.

At the time, Patterson said the likely result was for consumers to make more calls for the same cost.

2degrees was a strong advocate for removing the fees altogether, citing them as a barrier for new entrants into the market.