Telecommunications company Optus has posted flat third quarter net profit of $143 million, just as two of its major mobile competitors announce their marriage of convenience.
Vodafone and Hutchison are merging their Australian arms into a Vodafone-labelled business in an effort to improve earnings and to better compete with Optus and the much bigger Telstra.
The Optus result was better than that from its parent, Singapore Telecommunications which saw its third quarter profit slide 16% to $S799 million from the same period of last year.
For the three months to December 31, Optus said it increased its operating revenue by 10% on the previous corresponding period to $2.2 billion, underpinned by growth in mobile and wireless broadband customers.
Optus said: "A standout performance in mobile, including the addition of 213,000 new mobile and wireless broadband customers, underpinned overall growth".
Paul O’Sullivan, Optus Chief Executive said: “Despite the difficult environment, Optus delivered strong results in all areas. Over the last 12 months, Optus added more than 600,000 customers that resulted in double-digit mobile revenue growth.
"Optus continues to strengthen its network breadth and depth, grow its distribution channels and deliver innovative products that offer real value.”
“Optus is trading strongly, showing accelerated growth and funding significant investments this year in infrastructure and services while generating over half a billion dollars in free cash flow to the third quarter.
“We remain committed to driving more competition and choice for Australians and are well positioned to take advantage of any positive developments in regulation or market structure,” Mr O’Sullivan said.
In the quarter, Optus Mobile operating revenue grew a strong 17% to A$1.33 billion, with the largest quarterly outgoing service revenue growth in five years driven by continued strong demand for iPhone 3G, Optus’ “Timeless” unlimited plans and wireless broadband.
Despite this optimism, Mr O’Sullivan will be both concerned at, and no doubt quietly overjoyed at the merger proposal between Vodafone and Hutchison in Australia.
A larger, better resources third force in mobile phones will be created, but it will be one that will concentrate more on trying to make money, rather than on some of the intense price cutting that we have seen in the past three years or more.
It’s aimed at boosting returns for one or both of the partners, which has pleased investment analysts, which should carry warning bells for consumers.
It’s a realisation between Vodafone and Li Ka-shing’s Hutchison Telecommunications, that the good old days of anything goes competition/build market share/strategic stake etc etc are over. Vodafone will be the winner, and Hutchison will depart Australia eventually, with losses of well over $A2 billion.
Bigger rivals Telstra and Optus, controlled by Singapore Telecommunications, are quietly cheering because they will reckon that a combined Vodafone/Hutchison in Australia will; 1) cut the number of mad dog mobile operators to one and 2) the new merged group won’t be so frenetic a price cutter with cut-price deals, uneconomic plans and price caps.
For Telstra and Optus, it’s also good news for their growing 3G Networks: Hutchison, which was the first into the market with the 3 network, will be able to boost returns with the efficient Vodafone marketing team
Vodafone and Hutchison have created a 50-50 joint venture – known as VHA – to hold their combined businesses in Australia which have about 6 million subscribers with annual revenues of about $4 billion.
It will spell the end of the "3" brand in Australia, which analysts said could prepare an eventual exit of Mr Li from the Australian market.
The ending of the 3 brand is a powerful signal that Hutchison isn’t in this market for the long term. What’s that meant for the sponsorship of Test Cricket and the soccer and rugby union football codes.
It is also bad news for the free to air TV networks. The combined company won’t spend as much as the two did separately. The Nine Network in particular with its summer test cricket broadcasts could be hit, and Seven with its rugby union test telecasts.
According to the companies, combining their back offices, IT and networks will save more than $2 billion in costs. Some of that has to be marketing spend, including TV, radio deals, outdoor, newspaper and magazine deals as well.
The two companies refused to say how many of their 3,700 jobs would be eliminated, many of them in the two head offices. Together Vodafone and "3" run about 400 shops across the country, including the Crazy John’s stores acquired by Vodafone last year.
That will be bad news for some retail property owners at a time when tenancies are under pressure.
Hutchison had revenues of $A1.5 billion over its latest financial year, Vodafone’s $A2.4 billion.
Hutchison had vastly inferior profitability. Reflecting its stronger position, Vodafone will receive $A500 million from the combined entity; retain its brand (for which a fee will be paid); and take three of the top four management positions. Hutchison CEO, Nigel Dews will run the merged group.
Telstra currently has around 9.3 million mobile phone users, Optus more than 7 billion. The Australian mobile businesses of Vodafone and Hutchison Whampoa are currently the third and fourth largest in the country respectively and merged they will have around 6 million subscribers.
It will have 26% of the market, behind Optus with 32% and Telstra on 42%, a far comfortable position from which to gener
