Telecom increases profits ahead of LLU ruling

6 Nov 2003

New Zealand’s dominant telecoms services provider Telecom New Zealand (Telecom) posted an 11% rise in net profits to NZD162 million in the quarter ended 30 September 2003 thanks to lower interest rates, but increased competition in its core markets saw revenues and EBITDA flatline. Consolidated operating revenue rose marginally to NZD1.32 billion, compared with the same period of 2002, while EBITDA of NZD554 million was only 2.4% higher than the year-ago figure. Telecom’s CEO Theresa Gatting conceded that her company was ‘seeing significant price pressures in voice calling in both New Zealand and Australia’, although she went on to point out that Telecom was ‘making good progress with the new growth areas…such as data and IT services’. Nonetheless, the fall in sales is a cause for concern given that the Telecommunications Commissioner is set to announce a recommendation on local loop unbundling (LLU) on 20 December, the outcome of which could have serious long-term ramifications for the PTO.

The telecoms regulator ComCom presented its draft recommendations on LLU on 18 September 2003. The proposals called on Telecom to open its copper wire network to rival operators, a move that ComCom believes will deliver substantial benefits to users. The state had widened the original scope of its inquiry in July, and instead of looking just at the so-called ‘last mile’ to the customer’s home, extended the investigation to cover access to the main distribution frame, co-location issues, backhaul of competing operators’ voice and data transmissions to their own networks, and line sharing issues for data-only applications. Not surprisingly Telecom challenged the decision on LLU, saying any move to compel it to provide access could wreck the burgeoning broadband market. The telco added its weight to a wider argument that the country’s fledgling FWA providers would find it difficult if companies such as TelstraClear began offering DSL-based alternatives and would lose any incentive to develop alternative networks. Some critics suggested that companies such as Woosh, formerly Walker Wireless, and BCL – the state-owned unit of Television New Zealand – already offer competition through FWA and that any ruling on LLU would merely tilt the balance towards TelstraClear – to the smaller players’ disadvantage. TelstraClear immediately countered by heralding LLU as a breakthrough for consumers and investors alike. The company’s CEO Rosemary Howard said the decision would pave the way for true consumer choice in broadband services.

Despite the fact that restrictions on market entry for new operators were lifted on 1 April 1989, Telecom maintains a stranglehold on the fixed line market. At the end of June 2003 it had 1.8 million or so access lines, up 2% from the previous year, of which 1.42 million were residential, 303,000 business and 79,000 Centrex lines. At that date it controlled 96% of the fixed line access market and 80% of the market overall. By 30 September the number of residential access lines had grown by 1.1% to 1,421,000, helping generate a 3.1% increase in turnover to NZD270 million. Mobile users to its 027 (CDMA) and 025 (TDMA) networks stood at 1.27 million, up from 1.25 million three months earlier, while Xtra internet customers were 8.5% higher year-on-year at 434,000.

New Zealand
GlobalComms Database