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Telstra, Australia’s dominant telecommunications company, lowered its long-term earnings guidance Friday because of higher costs in the latest piece of bad news to arrive ahead of the government’s A$8bn planned share sale.
In a marathon presentation to investors Friday, Telstra said it expected earnings before interest, tax, depreciation and amortisation to rise between 2 and 2.5 per cent through fiscal 2010, rather than the 3 to 5 per cent annual growth predicted last November. Costs are likely to rise between 2 and 3 per cent annually, rather than stay flat, as the group fails to reap the anticipated benefits from building a A$4bn fibre optic network, which it recently cancelled because of a regulatory dispute over access charges.
Telstra stuck to its profit forecast for the coming year. It also sought to underline the rapid progress in a five-year transformation strategy overseen by Sol Trujillo, its American chief executive, by launching yesterday its third-generation mobile phone network, two months ahead of schedule.
Canberra is divesting its remaining 51.8 per cent stake in Telstra and will publish on Monday the prospectus for its A$8bn public offering. The rest of the shares will be transferred to the so-called Future Fund, which is run independently and was created to cover government pension liabilities.
Telstra’s share price rose Friday 2.7 per cent to A$3.83. Although the share price has tumbled over the past year, it has bounced back in recent weeks from A$3.5, when the government announced its divestment. Analysts said investors were snapping up shares ahead of Monday’s public offering announcement, which is expected to include a preferential entitlement, as well as a discount of 5 per cent, to existing Telstra investors who subscribe for more shares.
Telstra’s presentation Friday was however spoilt when a fire sprinkler went off, leaving many attendees soaked and forcing Telstra to interrupt proceedings for a couple of hours to switch to another venue.
The share sale is taking place amid feuding between the company and the government, as well as the competition regulator.
In an interview with the Financial Times, Mr Trujillo said the company’s strategy was in no way influenced by the government’s divestment plan, known as T3 as it will be the third tranche of equity sold by the government.
“Everything that we’re doing is driven operationally,” he said. “T3 is an insertion that we have to accommodate.”
Concerning the predicted increase in long-term costs, Mr Trujillo said: “It’s not that our costs are going up. It’s that some of the cost reductions that could come from building that fibre won’t occur.’’
Mr Trujillo left the door open for a revival of the A$4bn fibre project and further pricing negotiations with the regulator.
“The issue right now is that under the regulatory scheme that has existed we haven’t found a solution. We didn’t get there but perhaps down the road we could figure out a way that makes sense for their (regulatory) purposes and for ours.’’
In a separate interview, Serge Tchuruk, chief executive of Alcatel, which was due to supply the equipment for Telstra’s fibre optic network, told the FT that Telstra’s withdrawal was disappointing but “hopefully’’ not final.
“You cannot reach through wireless, whatever the progress are, some of the bit rate that is needed…,’’ he said.