By Ross Kelly
SYDNEY--Australia's biggest telecommunications company exploited
the buzz around Apple Inc.'s latest iPhone to lure more mobile
customers in the first half of its fiscal year, but failed to
reverse slowing growth in an increasingly saturated cellphone
market.
Telstra Corp. said first-half profit rose 22%to 2.09 billion
Australian dollars (US$1.61 billion) in the six months to December,
beating the A$2.01 billion average of five analyst forecasts
compiled by The Wall Street Journal. The rise in earnings was
supported by an accounting loss a year earlier on the sale of
Telstra's directories business.
Net profit from continuing operations rose by 7%, while earnings
before interest, tax, depreciation and amortization edged up 0.5%.
Telstra added 366,000 new mobile accounts during the period, helped
by the launch of two versions of Apple's new iPhone 6. The figure
was about half the 739,000 prepaid and postpaid customers it
reported a year earlier.
Australia's smartphone market alone--supplied by three mobile
operators including Optus and a resurgent Vodafone Australia--is
close to 80% penetrated, which has driven Telstra to explore other
ways to grow mobile revenue.
"If you look at postpaid there's no doubt we've seen that market
slow down," said Andy Penn, Telstra's chief financial officer. "We
see plenty of opportunity, though, in tablets and also in
machine-to-machine."
Telstra has become increasingly reliant on mobile growth to
offset long-declining fixed-line revenue. Its strategy of plowing
cash into mobile-infrastructure upgrades has helped attract more
customers and support bumper profits over the years.
Many investors' minds are focused now on what Telstra will do
with the cash pile it inherited three years ago when it agreed to
sell its fixed-line infrastructure progressively to the government
for A$11 billion to help build a national broadband network.
The windfall gives the company scope to return more to
shareholders through dividends or share buybacks. Yet it has
stripped Telstra of an infrastructure monopoly it once had, forcing
it to compete harder for retail customers.
Industry analysts have mixed views on how Telstra may spend the
rest of its booty. J.P. Morgan last month forecast a further A$5
billion in share buybacks between the 2016 and 2018 fiscal years.
Last year, Telstra rewarded shareholders with a A$1 billion
buyback.
The company has also bumped up its half-yearly dividend payout
modestly over the past year to 15 Australian cents a share--having
kept it steady at 14 cents for eight years. It has also invested
A$1.3 billion in 4G spectrum and acquired PacNet, an Asian subsea
cable operator.
"They're doing a good job and the balance sheet is in an
appropriate position," said Tim Carleton, a Sydney-based portfolio
manager at Auscap Asset Management. "It's not easy to deploy
capital when you're as large as Telstra. They're doing so in a
sensible and measured manner."
Write to Ross Kelly at ross.kelly@wsj.com
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