XT failures leave Telecom battling for mobile growth

Paul Reynolds. Photo / Dean Purcell

Nearly 12 months on from the first of the XT mobile network outages, Telecom's mobile business is still struggling to deliver the kind of growth the company hoped for.

Mobile revenues had started to rise but "we have a long way to go to meet our aspirations", chief executive Paul Reynolds said yesterday as the company delivered first-quarter earnings.

Telecom has pinned much of its growth prospects on mobile revenue and broadband as traditional revenue sources begin to ease off.

Forsyth Barr analyst Guy Hallwright said although there were no major declines in the mobile area, it was yet to see a big surge in growth.

"This is probably still early days, given that they said it was going to ramp up over this year but it would be nice to see a little bit more coming through," said Hallwright.

He said the next few quarters should see the effect from XT outages start to fade and growth pick up.

At the end of the September quarter the XT network had 839,000 customers, up 127,000 from the previous quarterly period.

Craigs Investment Partners analyst Geoff Zame said the migration of customers to XT was on track, but the entry of 2degrees and Vodafone's competitive response had made the mobile market more difficult.

"Connections are static, they're migrating their base but underneath the static connections are they actually gaining share in some places?" said Zame.

"They mention they are doing a bit better at the top end of town, which is to be expected with Gen-i, but it's the consumer space and the SME market here in Auckland particularly that are the areas they are most under-represented and it's not clear they are making any traction."

Overall, Telecom lost 19,000 mobile connections during the quarter, more than half as a result of TelstraClear taking its wholesale relationship back to Vodafone.

The majority of the balance were prepay customers.

Average revenues per user rose 53c to $26.83 on the same period a year earlier.

Reynolds said yesterday that revenue from mobile voice calling had been "challenged" by competition, but smartphone penetration and the resulting increase in data use was driving improved revenues.

He said 12 per cent of Telecom's mobile customers owned smartphones, up from 7 per cent. Now 25 per cent of phones sold were smartphones.

"We've seen growth over the last two or three quarters but we're yet to hit the peak of revenues seen in the quarter a year ago. The signs are good but our ambitions are higher."

In what will be the company's last reporting of quarterly results before it moves to a six-monthly reporting regime, Telecom yesterday reported adjusted net earnings fell 49.1 per cent to $83 million for the first quarter ending September 30.

Adjusted earnings before interest, taxation, depreciation and amortisation (ebitda) were down 0.9 per cent to $443 million for the quarter, with costs improving 4 per cent.

Revenue fell 2.9 per cent to $1.3 billion and a quarterly dividend of 3.5c, with full imputation, will be paid.

Shares in Telecom closed down 4c at $2.07.

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