Singapore Telecom, south-east Asia’s biggest phone company, on Monday warned it might fail to reach its target of double-digit growth in underlying earnings this year because of fierce competition for in Australia for its unit there, Optus, its largest
SingTel’s share price fell 3.5 per cent in Singapore and 3.1 per cent in Sydney after Singapore’s biggest listed company told the Australian stock exchange said profit margins at Optus were expected to fall short of guidance.
SingTel said double-digit growth in underlying earnings “remains the objective in the medium term”. It posted a 22 per cent increase in underlying net profit to S$3.06bn (US$1.8bn) in the last fiscal year.
Lee Hsien Yang, SingTel chief executive, warned in May that sales growth at Optus this year would “moderate” because of tougher competition in Australia’s maturing mobile phone market.
The margin decline also “reflects the cost of projects designed to improve returns in the future", including 3G high-speed wireless services, SingTel said on Monday.
The earnings downgrade came two weeks after Telstra, Optus’s bigger Australian rival, warned of a fall of up to 10 per cent for the year to June 2006 because of declining revenue from its mobile telephone and high-margin fixed-line services as well as government plans to tighten regulations.
SingTel said it still expected sales growth this year at Optus to expand faster than the overall market, but revenue growth for July-September would be flat from a year ago.
Optus reported a 39 per cent rise in underlying net profit to a record A$648m (US$497m) last year as sales increased by 8.9 per cent to A$6.9bn.
Optus and other mobile operators are also being pressed by competition regulators to lower fees they charge to end phone calls on each other’s mobile networks.
SingTel has hoped that rapid growth in mobile usage in Indonesia and India, where it has invested in local operators, would help offset a slowdown in Australia.
But the head of Telkomsel, SingTel’s Indonesian affiliate, said at the weekend he expected increased competition next year and a fall in the average revenue per user because of the entry of new rivals, including Hutchison Whampoa and Lippo Telecom, into the sector.
Telkomsel, which has a 54 per cent share of the local mobile market, also warned that move moves to sign up lower-spending mobile customers in support subscriber growth could result in lower profit margins and a cut in dividend payouts to shareholders, including SingTel, which has a 35 per cent stake.
SingTel has relied more on overseas operations to boost sales and profits, spending S$20bn over the last few year years to buy stakes in regional mobile operators, including its 2001 takeover of Optus.
Operations outside Singapore accounted for more than 70 per cent of SingTel’s revenues last year and 66 per cent of its earnings.