AAPT-PowerTel narrow losses

TELECOM New Zealand is bullish on the prospects for its Australian division despite losses incurred. It predicts earnings would double in the next few years.

New Zealand's incumbent telco reported group net earnings of $NZ225 million ($186.53 million) for the three months to the end of September, unchanged from the first quarter of last financial year. The result for its Australian division, which includes the merging AAPT and PowerTel businesses, was an operating loss of $5 million, which was better than the $8 million last year.

"There is quiet confidence building in our Australian business,'' chief finance officer Marko Bogoievski said. Earning before interest, tax, depreciation and amortisation (EBITDA) rose to $23 million in Australia, from $5 million, although the result was bolstered by the sale of AAPT's mobile customer base and the inclusion of PowerTel's results. Telecom NZ bought PowerTel in April for $NZ357 million, lured by a fibre optic network spanning business and suburban belts of Brisbane, Gold Coast, Newcastle, Sydney, Canberra, Melbourne, Adelaide and Perth. A merger between PowerTel and the AAPT telco is currently underway, which will migrate the AAPT customer base onto PowerTel's infrastructure, improving profit margins and cutting Telstra and Optus out of the loop. The move could eventually improve the profit margin for retail customers from the low teens to more than fifty per cent.

"The integration program is on track and there is multiple streams of activity,'' Mr Bogoievski said. Previously, the Australian division has been a source of headaches for Telecom NZ management. But the improved scale arising from the PowerTel merger, along with better focus and professionalism was likely to improve earnings, Mr Bogoievski said. "We can take a business currently earning about $100 million and we should be able to double that in the next few years,'' he said. As recently as six months ago, Telecom NZ was looking to offload AAPT. But the company is now attracting big clients like Macquarie Telecom and Commonwealth Bank. Despite the bullish outlook, the company did note that Australian environment was competitive and "retail prices continue to decline across most service categories, while margins remain under significant pressure.''

Telecom NZ chief executive Paul Reynolds said the group result came against a backdrop of growing regulatory and competitive change. "Our future success will be determined by how well we meet our customers needs and expectations,'' he said. "Telecom has signalled its intentions very clearly. We have made a deliberate choice to invest for the future, in an environment of greater regulatory clarity.'' The telco has been ordered by the NZ government to open up its network to rivals and split into three individual operating units.

"While operational separation will bring some tough requirements, and is a very complex exercise, were now moving to an environment in which the need for any further regulation is greatly reduced,'' Mr Reynolds said.