Switch by Woolies creates $15m hole for Telecom

By PETER GRIFFIN

Telecom's loss of Woolworths as a large customer in Australia will cost it $15 million a year, says brokerage Macquarie Equities.

AAPT, Telecom's Australian operation, generated revenue of about $15 million annually from providing voice-calling services to the retail giant, according to Macquarie research.

This revenue will dry up as Telstra wins back all of Woolworths' telecoms business in a deal thought to be worth A$300 million ($325 million) over five years.

While the lost business will do little to dent Telecom's profits, Macquarie pointed out that the loss represented about 5 per cent of business calling (local and long distance) revenue in Australia and was a significant customer brand to lose.

But the Woolworths business was estimated to be reasonably low-margin - less than 10 per cent at the earnings before interest, tax, depreciation and amortisation (EBITDA) level.

Telecom said it was unable to provide all the services Woolworths required.

"That TCNZA did not win the Woolworths contract confirms that it is unlikely to be the revenue growth engine for the Australian business," said Macquarie.

* Telstra has for the first time publicly set a standard price competitors will pay to access its network of A1.7c a minute, in a regulator-driven move to introduce greater price transparency.

The New Zealand Commerce Commission last year recommended that the price Telecom charged rival TelstraClear for network access should drop from 2.6c a minute to 1.13c a minute, bringing it more in line with Australian pricing.

While Telstra's standard rate makes it look relatively expensive compared with Telecom, in reality Telstra's large wholesale customers negotiate significant discounts, with the average interconnect rate in Australia believed to be about 0.9c a minute.

Access to Telstra's "local loop" service would be charged at a rate of A$20 a month in city centres and A$40 everywhere else.