SingTel warns on profit due to pressure in Australia

SYDNEY (Reuters) - Singapore Telecommunications said on Monday it may miss its 2006 profit target because of tough competition facing its Australian affiliate Optus, sending its shares down 4 percent.

SingTel, Asia's fifth-largest phone firm, said it expected core earnings growth at Optus to fall because of increased competition and price pressures, especially in mobile phones.

The city-state's biggest listed firm had previously forecast double-digit growth in earnings before interest, tax, depreciation and amortisation (EBITDA) in the year to March 2006 but already saw first-quarter profits burdened by a margin squeeze at Optus.

SingTel said regulatory decisions were weighing on Optus' operational EBITDA margins, which it expects to fall 1-2 percentage points from previous guidance, and that it would stick to its goal of double-digit earnings growth in the medium term.

The news came two weeks after Australia's top-ranked carrier, Telstra, flagged a fall in year to March 2006 earnings of up to 10 percent, saying mobile revenue growth could halve from 8 percent last year.

Optus is the second-largest phone company in Australia, where more than eight in 10 people own mobile phones. Its mobile division is SingTel's top revenue generator.

Talking to Reuters, Optus chief executive Paul O'Sullivan said expanding broadband services would be a key strategy for the unit in the face of increasing mobile competition.

"We believe that over the next few years, as more homes and businesses start using broadband and as broadband starts getting delivered on mobiles, people increasingly want broadband services that work in a synchronised way on their mobiles and their PCs."


Continued pressure

Mark McDonnell, telecommunications analyst at Burdett, Buckeridge and Young, said he believed Optus's margins would continue to come under pressure, especially due to regulatory proposals by the competition watchdog which would lower the fees mobile companies charge to end calls on each other's networks.

"The expectation is that the rates will decline and the Australian Competition and Consumer Commission's proposal provides for that to continue for three years, and that therefore implies this pressure will continue," McDonnell said.

Stephanie Wong, analyst at Kim Eng Ong Asia Securities said: "This (announcement) may prompt SingTel to do something on the dividend front to reward shareholders who have stuck with them through the good and bad times -- to increase the payout ratio or proceed to a capital reduction, for instance."

Optus said it would continue to target revenue growth in excess of market rates of around 2-3 percent for the current fiscal year, but CEO O'Sullivan declined to say what margin Optus would aim for to beat them.

He said regulations such as proposals by Australia's competition watchdog to lower mobile termination rates -- fees mobile phone companies charge to end calls on each other's networks -- were impacting profits.

Optus's mobile division posted operating revenues of $3.82 billion in fiscal 2005, accounting for 55 percent of Optus's total revenues and about 37 percent of SingTel's sales.

Optus grew its mobile customer base 6.6 percent during the year to March 2005 to 5.9 million subscribers -- a market share of 33 percent.

SingTel said it would maintain its strategy of investing in new mobile and fixed line broadband networks and its capital expenditure target of around A$1.1 billion.

australia mobility phone singtel telco telecommunications