SingTel warns on Optus

Singapore Telecommunications, Asia's fifth largest phone firm, says it might not post double-digit underlying earnings growth in the year to March 2006 because of tough competition facing its key Australian arm, Optus.

The news knocked nearly 3 per cent off its share price.

SingTel said it expected operational earnings before interest, tax, depreciation and amortisation (ebitda) at Optus to fall due to increased competition and price pressures, especially in mobiles.

It said regulatory decisions were also squeezing Optus operational ebitda margins, which it expects to fall 1 to 2 percentage points from previous guidance.

Optus is the number two ranked phone company in Australia, where more than eight in 10 people own cellular phones. Its mobile division is SingTel's top revenue generator.

The downgrade comes two weeks after Australia's top-ranked carrier, Telstra, flagged a fall in fiscal 2006 earnings of up to 10 per cent owing to a fall in mobile revenue growth, which it said could halve from 8 per cent last year.

Mark McDonnell, telecommunications analyst at Burdett, Buckeridge and Young, said he believed Optus's margins would continue to come under pressure, especially due to regulatory proposals by the competition watchdog which would lower the fees mobile phone companies charge to end calls on each other's networks.

"The expectation is that the rates will decline and the Australian Competition and Consumer Commission's proposal provides for that to continue for three years, and that therefore implies this pressure will continue," McDonnell said.

Stephanie Wong, analyst at Kim Eng Ong Asia Securities said: "This [announcement] may prompt SingTel to do something on the dividend front to reward shareholders who have stuck with them through the good and bad times - to increase the payout ratio or proceed to a capital reduction, for instance."

Optus's mobile division posted operating revenues of A$3.82 billion in fiscal 2005, accounting for 55 per cent of Optus's total revenues and about 37 per cent of SingTel's revenues.

Optus grew its mobile customer base 6.6 per cent during fiscal 2005 to 5.9 million subscribers, lifting its mobile market share to 33 per cent.

"While the group may not achieve double-digit growth in underlying earnings for the current financial year, this remains the objective in the medium term," SingTel told the Australian Stock Exchange.

SingTel posted a 22 per cent increase in underlying net profit in the year ended March of S$3.06 billion ($2.63 billion).

- REUTERS