Wellington/Singapore: Asian phone companies Singapore Telecommunications and Australia’s Telstra Corp Ltd reported falling profits on Thursday, but flagged a return to earnings growth and improvement in business.
Growth at major telecommunication companies in Asia Pacific has slowed down as the mobile-phones business saturated, pushing firms to invest in new growth drivers such as data, pay-TV and boost their lucrative corporate segment.
Telstra, which inked an A$11 billion deal with the government to hand over its fixed-line assets to form the basis of the $38 billion National Broadband Network, expects to see low-single-digit earnings growth in the year ahead on lower costs, more customers and better margins.
“Telstra is in a much stronger position now than they were 18 months ago. They have now emerged as a clear leader in the mobile space... and they’re in a pretty strong position looking at the next 12 months,” said David Kennedy, Melbourne-based research director at research firm Ovum.
The outlook for Telstra was bright, with consumer spending likely to remain strong in key areas such as mobile despite the global market turmoil and a two-paced Australian economy, Kennedy said.
SingTel reaffirmed its expectations for low-single-digit earnings growth for the year to March 2012 in its key markets of Singapore and Australia.
“The Australian mobile market has become more competitive, with competitors discounting prices and sacrificing profitability,” chief executive Chua Sock Koong said.
SingTel’s quarterly profit fall was driven largely by a weak contribution from Indian associate Bharti Airtel, but the company is picking strong improvement after a year of restructuring.
Telstra’s shares were up 5% at A$2.98 in a broader market that was down 0.8%. SingTel was down 1.4%, in line with the benchmark index.
Telstra eked out a 0.7% rise in core revenue for the year ended 30 June and predicted low single-digit growth for both revenue and earnings before interest, tax, depreciation and amortization (EBITDA) for 2011-12.
“The big message is that we’ve exceeded guidance across all categories and the business has returned to growth,” chief executive David Thodey told Reuters.
For the year just ended, EBITDA fell 6.4%, after the company had predicted a high single-digit decline, and said the result reflected a better second half as restructuring reduced costs and customer numbers increased.
Net profit for 2010-11 was A$3.23 billion ($3.20 billion), compared with A$3.88 billion a year earlier, and analyst’s expectations of A$3.097 billion.
SingTel, Singapore’s largest listed company 55% owned by state investor Temasek Holdings, reported a surprise 2.9% fall in first-quarter net profit to S$916.2 million against a market expectation of S$962.8 million.
But SingTel expects an improvement at Bharti, India’s top mobile phone carrier in which SingTel has about a one-third stake, as the Indian firm’s African operations generate higher revenues and earnings.
SingTel’s underlying net profit, which excludes exceptional items and exchange differences on capital reduction of certain overseas subsidiaries, net hedging as well as significant exceptional items of associates, fell 7.4% to S$873 million ($716.8 million), hit by changes in currency and tax.
Besides searching for new investments in emerging markets, SingTel has been investing in pay TV in Singapore and other content that can be delivered via mobile devices or ultra-high-speed networks to customers in Singapore and Australia.
SingTel bought stakes in mobile operators in high-growth Asian countries such as India, Indonesia and Thailand about a decade ago to boost growth and reduce its reliance on Singapore.
But as these emerging Asian markets mature and growth slows, SingTel has come under pressure to find new growth drivers.
“We will continue to invest for sustained growth into the future. Many of our new initiatives are in the early growth phase and we are on track to transform ourselves beyond a traditional communications company,” SingTel’s Chua said.
Analysts are expecting SingTel’s core markets, Singapore and Australia, to benefit in the years to come due to the strong growth in demand for data, driven by increased usage of smart devices such as Apple’s iPad and Samsung’s Galaxy phones and tablets.
Telstra also has been investing heavily as it prepares for a future that will be dominated by its retail and sales operations after the separation of its fixed-line network.
It competes against SingTel’s Optus and smaller players such as iiNet and AAPT, owned by Telecom NZ.
The company will look at capital management if its A$11 billion deal for the National Broadband Network is approved by shareholders this year, CEO Thodey said, and the company will also be on the lookout for acquisitions.
“Where necessary we may build or latch on new capabilities that include acquisitions, but you wouldn’t put it as the number one, we’re going for growth,” Thodey told Reuters by phone.