Telstra, Australia’s largest Telco, has reported a 36% fall in first-half profit, maintained its high 14c a share and done a deal to get the NBN underway and the cash rolling in from Canberra.
The downturn in earnings was steeper than expected (by around $200 million), but the combination of the dividend comment and the NBN deal saw the shares rise 3c in early trading to $2.91.
They however eased in late trading to close down one cent at $2.88.
Investors had expected a profit fall, the company has been warning of it since the 2010 profit announcement and then the AGM.
Telstra has explained that it has been investing heavily in revamping itself and its processes to improve efficiency (especially in dealing with customers) and winning back lost market share as more and more fixed lines are abandoned by customers.
Telstra said yesterday that it posted a profit of $1.21 billion in the six months to December 31, compared with $1.89 billion a year earlier.
Telstra has been overhauling its operations in a bid to increase profit margins, cut costs and diversify away from the declining market for fixed phone lines.
And there were plenty of signs that it remains a work in progress, but with some gains.
The higher costs and lower margins have come from the price cuts and boost to service levels.
This is showing up as lower margins: operational expenses were $7.8 billion in the latest half, up 10.7% or $757 million compared with the same half a year ago.
But for the majority of shareholders the big decision was the maintenance of it’s its full-year profit guidance and its interim dividend of 14 cents a share, on the way to a steady full year payout of 28 cents a share.
CEO, David Thodey and chief financial officer John Stanhope, along with Communications Minister, Senator Stephen Conroy, revealed that the first stage of the $11 billion NBN agreement had been reached.
Thodey said Telstra had completed key commercial terms with the NBN Co that set the framework for a definitive agreement for the $9 billion deal to co-operate with the rollout of the new fibre network.
This covers the progressive decommissioning of Telstra’s copper wire network as the NBN rolls out.
Thodey said it also reached in-principle agreement with the Commonwealth for a series of smaller deals associated with the NBN project that are worth an additional $2 billion.
That’s the broad brush, now for the fine print of what will be a large and complicated agreement..
Mr Thodey there is now a definitive target date for putting the deal to shareholders — July 1 this year. By that date Telstra has to not only finalise all the NBN deals with the NBN CO and Canberra, but also negotiate its structural separation with the ACCC.
Under Mr Thodey and chair, Catherine Livingstone, you feel Telstra has a far better chance of doing that, especially with the ACCC, compared with the unlamented CEO, Sol Trujillo and his chairman, Donald McGauchie (who is now at Nufarm)
Senator Conroy said in a statement yesterday that the first step NBN agreement "will fundamentally transform the telecommunications sector and this will benefit all Australians.
"In the meantime, the rollout of the NBN is progressing well. More customers are coming on in Tasmania and the construction [continues] of first release sites on the main land.
"While today’s announcement represents a significant step forward to finalising the agreement there are still some steps to take.
"The government, Telstra and NBN Co are now working constructively together to finalise the detailed commercial documentation and I expect this to be completed shortly.
"Once the definitive agreements have been finalised the government, Telstra and NBN Co will be able to provide further information on the agreement," Senator Conroy said.
The agreement is a precursor to Telstra writing up a plan to transfer customers from its copper lines to the national broadband network, a plan which requires approval from the competition regulator.
"Importantly, the Australian Competition and Consumer Commission will be scrutinising the arrangements as part of its consideration of whether or not to accept Telstra’s structural separation undertaking.
"When these processes have been completed, Telstra shareholders will have the opportunity to vote on the agreement at its extraordinary general meeting which is expected to be held on the first of July this year,” the Minister told a news conference.
Telstra said earnings before interest, tax, depreciation and amortisation was down 13.9% from the first half of the 2010 financial year at $4.58 billion. That was also under market forecasts.
Last year, Telstra earmarked $1 billion in spending in the 2011 financial year to revamp its approach to customers, grow market share and develop new products.
There were signs that this is having an impact. Nearly one million new mobile customers were signed up in the six months to December including half a million mobile broadband customers.
In the three months to December, Telstra added 181,000 post-paid mobile customers.
The strong rise in first half costs is expected to slow this half as Telstra continues to forecast a 14% fall in gross earnings and free cashflow of $4.5 to $5 billion.
The number of fixed-li
