Cost-cutting helps as Telecom revenue falls

By PETER GRIFFIN

Belt-tightening and reduced capital expenditure allowed Telecom to deliver a profit of $168 million in the first three months of the year, but the overall flat figures paint an uninspiring picture.

Telecom managed to squeeze 5 per cent growth in underlying net earnings out of its six newly reorganised divisions.

Revenue fell 15 per cent compared to the same period last year, but cost-cutting shaved 4.2 per cent off expenses in a fourth successive quarter of cost reduction that has reduced Telecom's headcount nearly 5 per cent to 3559.

The result puts profit for the nine months to March 31 at $480 million - down from $681 million for the same time last year.

However, the latter result was boosted by a $221 million dividend Telecom banked from its investment in the Southern Cross cable.

Over the past three quarters, the mainstay of Telecom's New Zealand business - its wireline division - has suffered a fall in local service and calling revenue.

Only a 5.1 per cent cut in expenses across that business has allowed the division to report modest growth with ebitda (earnings before interest, tax, depreciation and amortisation) rising 3.7 per cent over the nine-month period to $1.2 billion.

In its local mobile operations, Telecom's revenue grew by 4.5 per cent for the quarter with revenue of $187 million and earnings of $37 million, down 23 per cent.

Telecom now has 1.4 million mobile customers in New Zealand, though it faces falling average revenue per user - an overall decline of 8.8 per cent for the quarter.

Chief executive Theresa Gattung said the company's capital expenditure for the nine months to March 31 shrank to $567 million, down 45 per cent on the previous corresponding period.

The figure for the full year would be $825 million with a further drop to $780 million next year.

Across the Tasman, revenue fell 12 per cent for the quarter in AAPT's consumer business as it shed low-value customers. Ebitda at the Telecom-owned company was up 44 per cent to $23 million, and earnings were flat at $13 million.

Gattung said this was because the company had deliberately pulled back on the retail business to make more money out of higher-value customers.

AAPT's business division, including TCNZA and Connect - its internet provider - lost $2 million, compared to a $15 million loss in the same quarter last year, though ebitda growth was strong and expenses fell 5.3 per cent for the quarter.

Gattung said the next quarter would deliver more of the same from Telecom.

The cost-cutting would continue, helped in part by a vendor alliance with Alcatel, which is in final negotiations to implement an all-IP network for Telecom.

Telecom would deliver a fully imputed dividend of 5c a share, to be paid on June 14.