It’s been a mixed morning for the telecommunications industry, with Telstra disappointing the market with a 4.7% fall in net profit and Optus continuing its solid growth with net profit up 22% on the strength of its mobile division.
Telstra chief executive David Thodey announced the poor result this morning, saying increased competition in the mobile sector and lower revenues for fixed-line services are continuing to challenge the industry leader.
The company’s shares dropped by over 6% after the market opened this morning. As of 11.40 AEST they were trading down 8% to $2.99.
“2010 has been a challenging year, yet in the second half we started to see improving momentum in key products and positive growth with business, government and enterprise customers as well as profit growth at Sensis,” Thodey said in a statement.
The company announced net profit after tax fell by 4.7% to $3.8 billion, while sales revenue also declined 2.2%, or $558 million, to $24.8 billion. EBITDA also fell 0.9% to $10.8 billion.
The results reveal Telstra is struggling to compete in a changing industry, with fixed-line broadband services declining due to a hunger for wireless broadband and increased competition from smaller players such as iiNet, Internode and TPG.
Telstra said its fixed internet revenue declined by 0.7% to $2.1 billion, “as the broadband market matures and competition intensifies”. The company lost over 19,000 fixed broadband customers during the year, although it points out average revenue per user is growing at 0.9% year-on-year.
The game-changer here is wireless services, which Telstra says is becoming more of a demand as the market matures and prices continue to drop. “Competition from wireless continues to put pressure on the fixed broadband market, as it does on the fixed voice market,” it said in its results.
PSTN revenues fell by 7.4% to $3.4 billion as more users move away from home-phones and into mobile services. In fact, the company points out mobile revenue grew by 5.9% in the year, with a faster growth rate of 7.1% in the second half.
“We experienced strong wireless broadband revenue growth of 34.1% to $787 million and SIOs up 58.1% to 1.654 million. Retail post-paid SIOs grew by 278 thousand in the half and 447 thousand in the year to 7.016 million.”
“Retail fixed broadband revenue grew by 0.9% during the fiscal year with growth limited by the maturing of the fixed broadband market, substitution to wireless products and intense competition. Fixed retail broadband SIOs increased by 11 thousand in the second half following the release of new products, bundled offers and price changes.”
But Thodey is determined to keep Telstra on the right track. The launch of new products like the T-Hub, and the emphasis on smartphones like the iPhone, is hoped to keep the company moving along against cheaper competitors.
“In 2011, Telstra expects an increase in the customer base and flattish revenues, but because of our investments and changing product mix the company expects a high single digit percentage decline in EBITDA, and free cashflow of between $4.5 and $5.0 billion.”
Thodey says the company will put more emphasis on customer service and will open the industry’s first 24/7 call centres, saying the company will “continue to improve customer service and satisfaction”.
Meanwhile, rival Optus has delivered a solid result with net profit up 22% to $170 million, alongside a revenue increase of 2.6% to $2.26 billion. EBITDA grew by its strongest amount in five years, up 9.7% to $553 million.
The key to this strong result is Optus’ mobile division which gained over 190,000 subscribers in the June quarter alone to a total of 8.6 million. In the latest quarter, mobile revenue comprised 63% of total revenue, a full two percentage points higher than the same period in 2009.
The number of 3G subscribers increased by 16% to 4.17 million, while the move to wireless services is also evident with a total of 994,000 wireless broadband subscribers.
Optus points to the take-up of smartphones and mobile data as a key change in the industry, saying the “sustained demand” for such services has increased the amount of capped plans being signed up.
Unlike Telstra’s flailing fixed-line business, Optus is continuing to pick up business with a revenue increase of 4.9% in its consumer fixed-line division. It claims its cheaper prices and an emphasis on unlimited downloads has helped sign up new customers.
Led by what it calls a “range of new broadband offers with generous data inclusions”, on-net broadband revenue grew by 15%, with customer numbers increasing 5.3% to 926,000 during the quarter.
The next year will see Optus continue to invest in both fixed-line broadband, wireless and mobile services to keep the pressure on competitors, including Telstra.
“To support the growing demand for increased broadband speed, Optus has invested in the
upgrade of Hybrid Fibre Coaxial (HFC) cable network to speeds of up to 100 Mbps,” it said.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
