Telecom New Zealand profit boosted by Chorus demerger

Telecom New Zealand has reported huge gains in profitability thanks to one-off adjustments related to the demerger of its infrastructure business in December last year.

New Zealand’s incumbent operator reported net profit of NZ$1.2 billion ($973 million) for 2012, compared with just NZ$166 million last year, several months after agreeing to spin off Chorus.

The company agreed to the separation under pressure from the New Zealand government, but Chorus was subsequently awarded the bulk of contracts to build a new fibre-optic broadband network across the country.

Telecom New Zealand has reported huge gains in profitability thanks to one-off adjustments related to the demerger of its infrastructure business in December last year.

New Zealand’s incumbent operator reported net profit of NZ$1.2 billion ($973 million) for 2012, compared with just NZ$166 million last year, several months after agreeing to spin off Chorus.

The company agreed to the separation under pressure from the New Zealand government, but Chorus was subsequently awarded the bulk of contracts to build a new fibre-optic broadband network across the country.

Telecom New Zealand’s revenues for the year came in at NZ$4.6 billion, 8.6% less than in 2012.

Following the Chorus demerger, the operator has had to focus on becoming a more competitive fixed-line and IT services provider and mobile operator.

“Telecom’s operational performance reflects an increasingly competitive market and is in line with guidance,” said Chris Quin, the operator’s acting chief executive. “Following the creation of a new industry model post demerger, we expect strong competition to continue with increasing consolidation. Telecom will focus on winning in key markets to drive long-term value and will compete aggressively in fixed line to maintain broadband market share.”

Telecom’s top line was affected mostly by developments outside New Zealand, and particularly in Australia, where new regulation on mobile termination rates and the sale of AAPT, a consumer division, both weighed on revenues. Quin says that sales at the New Zealand business slipped just 2%, due mainly to ongoing declines in the fixed-line voice division.

In mobile, the operator has been busy closing its ageing CDMA network and transferring customers on to its newer GSM-based system.

“We lost some lower-value or zero use CDMA customers as we approached the switch-off,” said Quin. “We have welcomed 63,000 new customers on to higher-value post-paid plans on our newer smartphone network during the financial year. As a result mobile voice and data revenues grew by 2% compared to the previous year.”

Telecom also benefited from a 4.1% increase in broadband and internet revenues, to NZ$333 million, with broadband connections up 9,000 over the year, to 619,000 in total.

For 2013, the operator is forecasting a flat to low single-digit percentage decline in earnings before interest, tax, depreciation and amortisation, indicating that competition is likely to remain tough over the next 12 months.