Telstra Profit Beats Analyst Estimates on Mobiles Growth

Telstra Corp., Australia’s largest phone company, posted profit that beat analyst estimates as a surge in new users for its fourth-generation network boosted its share of the mobile phone market to almost 50 percent.

Net income rose 12 percent to A$3.8 billion ($3.4 billion) in the 12 months ended June 30 from A$3.41 billion a year earlier, the Melbourne-based company said in a statement today. That compares with the A$3.7 billion average of three estimates compiled by Bloomberg.

Telstra spent A$1.3 billion upgrading its network, A$2.9 billion on mobile devices including Apple Inc. iPhones and bought A$1.2 billion worth of new spectrum to tap surging demand for wireless services. Chief Executive Officer David Thodey switched on the carrier’s high-speed 4G service in 2011, beating out rivals Singapore Telecommunications Ltd. and Vodafone Hutchison Australia Pty.

“They’re getting into people’s hands, on their iPhones, on their iPads, on whatever,” said Evan Lucas, a market strategist at IG Markets in Melbourne. “They’re probably making the winning bet about where consumption of the Internet will go.”

Telstra shares rose 2.4 percent to A$5.13 at the close in Sydney, the highest since May 22 and bringing this year’s gain to 17 percent. The benchmark S&P/ASX 200 index climbed 1.1 percent, marking a 9 percent increase in 2013.

New Users

“Our strategy is delivering,” Chief Financial Officer Andy Penn said in a phone interview today. The company is “investing in our customers to grow our customer base and improve customer service,” he said.

Telstra’s domestic mobile customers rose by 1.3 million during the year, giving the company 15.1 million subscribers, equivalent to about 65 percent of Australia’s population.

Telstra’s customer base compares with 9.6 million at SingTel’s Optus at the end of March while Vodafone had 6 million at the end of June, according to company presentations.

The former state-owned company has dominated mobiles growth in Australia, adding 2.9 million customers in the past two calendar years.

SingTel’s Optus unit added 601,000 over the two-year period while Vodafone Hutchison lost 1 million, according to data compiled by Bloomberg News.

Telstra’s bill for buying mobile phones, tablet computers and other goods sold through its stores rose 14 percent to A$2.9 billion as demand drove up the average cost of handsets, the company said today. It sold 2.8 million handsets, tablets, dongles and wireless devices designed to operate on the 4G network, Thodey told an investor call today.

Mobiles Growth

“Telstra has the first-mover advantage,” Vikas Gour, a Sydney-based analyst at Deutsche Bank AG, wrote in a note to clients Aug. 6. “The superior network is likely to help the company increase its market share in a slowing mobile market.”

The company will pay a final dividend of 14 cents, matching its own forecast, a payout it hasn’t changed since 2005. Telstra’s dividend yield, a measure of the payout in relation to its share price, hit an eight-year low of 5.5 percent in May.

Full-year revenue rose 1.9 percent to A$26 billion, while earnings before interest, tax, depreciation and amortization increased 3.9 percent to A$10.6 billion, Telstra said. The company had forecast low single-digit increases in both measures.

In the six months ended June, revenue rose 2.1 percent to A$13 billion and Ebitda grew 2.9 percent to A$5.6 billion.

New Customers

Mobile revenue grew 7.4 percent during the second half and 6 percent over the year. That compares to the average of 8.9 percent a year over the previous five years, according to data compiled by Bloomberg.

Total revenue in Australia’s mobile phone industry shrank 1.5 percent during the year through June 2012 and will stagnate after accounting for inflation in the most recent 12-month period, Deloitte Access Economics said in a February report. There may be a “modest recovery” in 2014 financial year.

Telstra has boosted investment in mobiles as fewer customers use traditional services and it cedes control of its copper-wire network to NBN Co., a government-backed company building a national fiber platform.

Second-half revenue from fixed lines fell 1.7 percent and data sales declined 4.3 percent while network services increased 24 percent. Revenue from Telstra’s international unit, which includes Hong Kong’s CSL New World mobile network, rose 22 percent to A$895 million during the period amid a 425,000 increase in customers over the past 12 months.

Government Project

Telstra has cut jobs in its Sensis phone directories division and agreed to pay A$1.3 billion in a government auction of mobile spectrum during the period. The company’s wage bill fell 0.1 percent to A$3.5 billion, the company said. Financing costs rose 2.4 percent to A$909 million during the year, it said.

It’s giving up control of its copper-wire network to NBN Co., a government-backed company that is building a national fiber network, in exchange of about A$11 billion of compensation.

That’s helping Telstra fund mobile upgrades to meet its forecast that customers will use as much data this year as in the previous two years put together.

Australia’s Labor government and opposition coalition differ on the design and cost of the new NBN network, which will turn Telstra from Australia’s biggest seller of wholesale phone services to its biggest consumer by the time it’s completed in 2021.

The opposition wants to spend A$30 billion funding a network reaching as far as neighborhood nodes. The government’s plan would connect homes directly to the fiber network for A$44 billion.

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