Telstra profit misses estimates in battle with Optus

Bloomberg | February 10, 2011 | Robert Fenner and Chan Sue Ling
Telstra Corp., Australia’s largest phone company, posted earnings that missed estimates as it accelerated spending to win back customers from the second- ranked Optus unit of Singapore Telecommunications Ltd.
Net income fell 36 percent to A$1.19 billion ($1.2 billion) in the six months ended December, Melbourne-based Telstra said in a statement today, missing the A$1.38 billion median estimate of four analysts surveyed by Bloomberg News. SingTel reported profit of S$998.2 million ($783 million) for the last quarter, beating analyst predictions for S$925 million.
Telstra cut prices, spent more on new call centers to improve service and increased handset subsidies as rival Optus added 150,000 new postpaid users in the quarter in Australia. While the moves added 919,000 new mobile and Internet customers in the six months, the profit margin at Telstra’s phone unit dropped five times as much as that of Optus.
“They are paying a big price to get these customers on board,” said Theo Maas, who helps manage about $5 billion at Arnhem Investment Management in Sydney. “The real hope is that once they have them, they can later sign them up for higher bundles and restore margins.”
Optus’s mobile-phone margin, which measures earnings before interest, tax, depreciation and amortization as a proportion of revenue, narrowed to 24 percent at the end of December from 25 percent a year earlier. Telstra’s mobile margin narrowed five percentage points to 29 percent.
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