Fixed-line bleeding drives down Telstra 1H

Nicole McCormick
11 Feb 2010
00:00

Telstra reported a 2.5% decline in sales revenue to A$12.3 billion ($10.9 billion) for the six months to December, amid accelerating fixed line customer losses.

The Australian incumbent also today reported flat ebitda of A$5.3 billion, while free cash flow was up 37% to A$2.6 billion.

CEO David Thodey said that there had been an “increase in the rate of decline in fixed products and a further slowing in the take-up of fixed broadband” in the first half.

He said a strong Australian dollar continued to affect revenue from overseas subsidiaries.

"Overall, we have seen a decline in adjusted revenues in the first half despite good performances in mobile data, wireless broadband and IP data,” Thodey said.

“This reflects challenging market conditions due to changing calling behaviors and stronger price competition."

Telstra now expects a low single digit decline in reported sales revenue for the year to end-June.

However, it reaffirmed its profit guidance and A$6 billion free cash flow target for fiscal 2010, despite the difficult market conditions.

First-half positives included wireless broadband revenues growth of 32% to A$368 million, with 1.3 million customers.

IP access revenues grew 21% to A$393 million as major corporate and government customers migrated from legacy to IP systems, enabling Telstra to provide additional managed services.

“Telstra will continue to invest in new products and services and improved customer service so we can return to revenue growth, and regain the market share that we have lost in this half," Thodey said.

"New product bundles and competitive pricing offers introduced by Telstra over the past few months have already been well received by our customers, as well as attracting interest from new customers,” he added.

But Fitch Ratings says that the government’s planned regulatory revamp, which includes dividing Telstra, could hamper the firm’s cash flow generation.

Thodey said the path to Telstra working with NBN Co. remains “immensely complex."

Research firm Ovum said the announcement indicated “rapid deterioration in Telstra’s revenue guidance, which in three months has “fallen from ‘single digit growth’, to ‘flattish’, to ‘single digit declines.’”

This was a result of the acceleration in PSTN decline and underlined the importance of the NBN negotiations for the company.

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