Telstra, Australia’s dominant phone company, on Thursday forecast a significant turnaround in the second half of the year after reporting a fall of 20 per cent in first-half net profit.
The group raised its full-year forecast, saying it expected earnings before interest and tax to rise 3-5 per cent, having previously forecast ebit growth of 2-4 per cent.
Sol Trujillo, Telstra’s chief executive, attributed the improved forecast to the fact that his restructuring plan was on track and that the company had already made many of the key investments needed to upgrade its infrastructure and product offering, notably in third-generation mobile services.
“There’s a whole series of things that we have been spending money on that we won’t now be spending so much money on,’’ he told the Financial Times.
However, an exception could still be a mooted A$4bn (US$3bn) fibre-optic network, which Telstra abandoned last year following a regulatory dispute over access charges.
While negotiations have not resumed, Mr Trujillo said: “Do I think it [the network] would still be good for Australia and for Telstra? Absolutely. I am open to talking [to the regulator] any time.’’ The bullish earnings forecast helped lift the share price on Thursday 3.9 per cent to A$4.54.
After slumping to a nine-year low eight months ago, the shares have rallied and added more than 20 per cent since November, when the government divested its controlling stake in Telstra in a larger-than-anticipated share offering.
Telstra’s overhaul comes as its main rivals in Australia boost their efforts to challenge the incumbent operator.
Optus, which is owned by Singapore Telecom, recently announced an A$800m investment to expand its third-generation mobile phone network to rural areas while New Zealand Telecom signalled that it was determined to improve earnings at AAPT, its Australian subsidiary, by offering to buy PowerTel, another Australian telecoms company.
However, Mr Trujillo brushed aside the heightened challenge, saying that comparing his rivals’ investment efforts to his more ambitious strategy to cut costs and upgrade the technology of a dominant former monopoly was like “apples and bananas.’’
Telstra’s net profit fell in the first half to A$1.7bn(US$1.3bn) compared with A$2.1bn a year earlier, reflecting higher operating costs and a 5.6 per cent decline in revenues from its fixed-line business.
But Mr Trujillo said the group was likely to have ebit growth of between 37 and 40 per cent in the second half of its fiscal year as it reaps greater benefits from its mobile and broadband investments.