Spark to chase mobile, IT revenue in multi-brand strategy

Net profit slipped to $370 million, or 20.2 cents per share, in the 12 months ended June 30, from $375m, or 20 cents, a year earlier. Photo / Dean Purcell

Spark New Zealand is backing a plan to run different brands at the budget and premium ends of the market and offer extra service sweeteners to deliver increased revenue in the coming year.

The country's biggest telecommunications company is targeting sales growth of zero to 3 per cent in the year ending June 30, 2017 on top of the $1.5 billion it reported today and a slightly smaller increase in earnings before interest, tax, depreciation and amortisation of zero to 2 per cent on $986 million.

The Auckland-based company has completed a three-year plan tilting its business to mobile and data-based services in the face of an increasingly obsolete landline operation, with traditional revenue now accounting for just 20 per cent of Spark's sales compared to mobile which accounts for a third.

Chief executive Simon Moutter told analysts today that he expects recent gains in the mobile market - which Spark now claims to be the biggest by revenue - will be more muted in 2017, and is targeting 5 per cent growth after generating an 11 per cent gain this year.

"We're still in a tough industry - we do have a better business but we're realistic about some of the drivers of growth," Moutter said. "We're unlikely to be able to continue at that rate with mobile feeling a bit more pressured: we've still got all the usual decliners to manage, we've got a potential new competitor emerging in Voda-Sky and likely to make some plays around how they position themselves for launch."

Spark plans to chase price-sensitive clients on its Skinny mobile and Big Pipe ISP brands, which came out of the company's ventures division, while reserving its own brand to pursue premium customers with a view to upselling them to fibre products or unlimited plans with greater data demands from included services such as video-streaming Lightbox and Morepork home security.

The company sees wireless broadband as an opportunity to grow the budget end of the market while reducing its reliance on network operator Chorus's copper network. Moutter said Spark is in the process of launching the service and he hopes to have 50,000 customers signed up by the end of the year.

Spark's also targeting a 20 per cent increase in revenue from platform IT services, such as its data centre and cloud-based offerings, which it sees as a high growth segment. Those products form part of Spark's $658m of IT services revenue, which rose at an 11 per cent pace in 2016.

Moutter said the ventures division, which Spark used to nurture the likes of Skinny, Big Pipe and Lightbox, is entering a new phase with some of the bigger units moved into the core Spark business and is setting up for the next round of growth in big data and the Internet of Things under the new leadership of Ed Hyde.

The company expects to see more consolidation in the telecommunications sector as thin broadband margins push out marginal players, leaving Spark, a merged Sky Network Television-Vodafone New Zealand, Vocus, and Two Degrees Mobile possibly only firms standing next year.

Moutter is backing the multi-brand strategy and "digital service inclusions" to maintain market share and grow revenue.

"We do see an increasing trend to these full-service offerings including media," he said.

Spark shares rose 2.8 per cent to $3.86.