New World Development

Tough market results in Telstra seeing red over CSL

PUBLISHED : Friday, 12 August, 2005, 12:00am
UPDATED : Friday, 12 August, 2005, 12:00am

Fierce competition in Hong Kong's crowded mobile phone market and profit-sapping goodwill charges have dragged the investment by Australia's Telstra in local provider CSL into the red - resurrecting speculation that a sale could be on the cards.

CSL, wholly owned by Telstra, which bought the asset from PCCW for $16.8 billion in 2000, yesterday reported earnings before interest and tax were down 21.4 per cent for the year to June 30, to $375 million, against $477 million a year ago.

Revenues were up 7.1 per cent to $4.31 billion from $4.02 billion on increased mobile data usage, international voice calls, prepaid business and handset sales.

However, revenue growth was comfortably outstripped by a 12.6 per cent jump in operating expenses to $3.07 billion, up from $2.73 billion previously.

Driving higher costs were increased subsidies on handsets and sales commissions - the price paid for plunging headlong into competition with Hong Kong's five other mobile phone service providers.

Exacerbating that news for parent Telstra came the need to take another charge for goodwill amortisation, which resulted in it booking a A$15 million ($89.7 million) loss on its failed attempt to build a springboard into Asia's mobile phone market.

CSL, which serves the city's crowded market with two brands - 1010, targeting the high-spending corporate segment, and One2Free, targeting younger mobile users - has been strong in the corporate market.

The company also offers third generation mobile services.

As business users use of roaming services and e-mail increases, CSL's focus on the corporate segment has helped it achieve above industry average revenue per user (arpu), which sources said was more than $300 last year.

While it did not elaborate on its 'move into the mass market' strategy, competition in the corporate market segment has been stiff.

SmarTone Telecommunications and Hutchison Telecom are also offering e-mail-capable handsets to court business executives while Sunday Communications, will probably begin to put more resources into the corporate market after having focused mainly on retail consumers, its 77.1 per cent shareholder PCCW has said.

Neither CSL nor Telstra commented on the results announcement yesterday and no figure was provided for current revenue per user, although Telstra said it remained above average.