Optus Grabs $122m As Parent Slides

Sydney Morning Herald

Wednesday August 13, 2008

Matt O'Sullivan

OPTUS has posted a flat net profit of $122 million for the first quarter as it goes all-out to boost its market share of the mobile phone market in the face of intense competition from Telstra.

But its parent, Singapore Telecommunications, suffered a 5 per cent fall in first-quarter profit to $S878 million ($710 million), blaming volatile currencies in South-East Asia where it has subsidiaries. The worse-than-expected result shows SingTel is starting to feel the effect of slowing economies in developing countries such as the Philippines and Indonesia, which have been big growth drivers in recent years. Rising fuel and food prices mean the rate of growth in customer expenditure is waning.

The contributions to SingTel from Optus this quarter were helped by the strong Australian dollar, a situation which is unlikely to be repeated in the next due to a sudden sharp downturn in the local currency.

Optus's all-important mobile phone business posted a 6.6 per cent decline in pre-tax earnings to $327 million for the quarter, mainly due to lower termination rates - the price a carrier charges callers to reach a phone on its network - from 12c a minute a year ago to 9c. The division, which contributed almost three-fifths of Optus's revenue, also booked a $20 million charge due to the collapse of payments company Bill Express. The telecom has sacrificed - at least temporarily - its focus on protecting profit margins, in order to boost its share of the mobile phone market. Total margins fell almost 3 percentage points to 25.3 per cent due to higher costs from enticing customers to sign up.

Optus continues to fork out $155 per user to attract customers, although the tactic has paid off by helping it increase the number of mobile customers by 6 per cent to 7.24 million. The more lucrative third-generation mobile customers rose by a third to 1.87 million. The telecom is also expected to begin legal action soon against the Federal Government for terminating a deal to hand over $958 million to an Optus-Elders consortium - known as Opel - to build a faster broadband network in the bush. Action has been delayed due to management changes at Elders.

Optus's chief executive, Paul O'Sullivan, said the telecom had benefited from no longer reselling services using Telstra's network and focusing on its own infrastructure. Smaller players were paying the price from relying on reselling Telstra services, he said.

"Although others are reporting softness in the economy ... we have not seen a major change in terms of customer behaviour," he said. However, some customers were taking longer to pay bills.

Mr O'Sullivan also indicated he has no desire to leave Optus despite clocking up four years in the top job this month. He would not comment specifically on whether Optus would buy collapsed telecom Commander Communications, which was placed in receivership last week. But he said Optus would "absolutely be there" where there was an opportunity for acquisitions.

Shares in SingTel fell 5c to $2.81 yesterday.

© 2008 Sydney Morning Herald

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