Tough Love: Telstra Users Boost But H2 Profits Set To Slide
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Love ain’t cheap as Telstra are to find out this week. The top telco is to record a “double digit decline” in profits as it feels the pinch after its $1 billion bid to win back flavour among disillusioned Aussies, known as Project New.
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Telstra’s makeover strategy, first unleashed last year, included treating the customer to round the clock service (only today it took to Twitter to remind users of this), new mobiles, 4G wireless mobile technology announced yesterday and other extras like alerts when users exceed mobile data or cap limits.
Telstra’s net profit for the year end June 30 2011 is estimated to lie in the vicinity of $3.134 billion, according to several analyst estimates, reports AAP.
If so, this represents a massive drop of 19.3 per cent compared to a year ago.
But despite this predicted slump, its short term pain for long term gains strategy appears to be working – its subscriber base has jumped again, analysts believe, although at a slower pace than H1.
And UBS analysts in an earlier research note this month, also believe earnings will turn a corner in 2011/12 period and show considerable improvement, reaping the rewards of Project New as well as lower redundancy costs.
“During 1H11 Telstra overspent as a result of strong subscriber growth and associated subsidies,” CBA Institutional Equities analysts said in a research note on August 5.
“Risks exist that Telstra has continued to overspend in 2H11, however this should not necessarily be viewed negatively, depending on growth achieved.”
The telco’s full year earnings before tax (EBITDA) guidance was a high single-digit decline, flat revenues and a 28 cents per share fully franked dividend.
In February, Telstra’s Chief, David Thodey, said it acquired over a million (1.05m) new customers over the previous six months – 919,000 mobile and 139,000 new broadband subscribers.
However, this was on the back of a 36 percent profit drop during the same period.
And, Telstra’s shareholder vote on the NBN is also unlikely to take place by October’s AGM, analysts believe.