M1 – BT

M1’s Q3 net dives 21% to $34m

Higher customer acquisition and retention costs dent profitability

The curtain raiser for the quarterly results of local telcos got off to a gloomy start yesterday, with MobileOne reporting a 21.1 per cent drop in third-quarter net profit and warning of a drop in full-year earnings.

Net income for the three months ended Sept 30 slid to $34.4 million from $43.6 million last year, as higher customer acquisition and retention costs dented profitability, M1 said.

Earnings per share dropped 22.4 per cent to 3.8 cents, while revenue eased 1.7 per cent to $196.7 million. M1’s gearing – debt-to-equity – ratio for the quarter was 128.2 per cent, down from 132.8 per cent last year.

‘Increased competitive activity prior to the launch of full mobile number portability on June 13, 2008 continued into Q3,’ said chief executive Neil Montefiore. ‘The combination of an increased take-up of new competitive tariff plans and continuing high acquisition and retention costs caused a decline in profitability in the quarter.’

Local telcos have seen profits suffer as a result of a full-blown marketing war to attract new customers and lock in existing subscribers in the wake of number portability.

M1’s customer retention cost soared 30.3 per cent in the third quarter to $155, while acquisition cost declined 6.9 per cent to $164, with the advertising and promotional blitz starting to show signs of cooling down.

Singapore’s smallest telco added 10,000 customers in Q3 to lift its total customer base to 1.621 million. Despite the increase, its overall market share had slipped to 26.1 per cent at end-July from 28.3 per cent a year earlier, as competitors chalked up bigger customer gains.

During Q3, M1 finally branched into the market for fixed-line broadband services by launching four new high-speed Internet access packages, thanks to an infrastructure leasing deal with rival StarHub.

The two companies also joined hands to bid for a government tender to build Singapore’s upcoming ultra-fast fibre-optic broadband highway, but the authorities awarded the contract last month to a rival consortium involving Singapore Telecom.

For the first nine months of this year, M1’s net profit dropped 15.2 per cent to $113.5 million, though sales edged up 1.6 per cent to $605.9 million.

With the worsening economic climate, the company is predicting a ‘single-digit’ decline in full-year earnings. However, it still expects its total cash distribution for 2008 to be at least 80 per cent of net profit. M1 shares closed six cents lower yesterday at $1.70.

Rivals StarHub and SingTel are expected to report their quarterly results in the coming weeks.

However, SingTel has already hinted of a possible slowdown for some parts of its Singapore business and has responded with cost-cutting measures such as a hiring freeze and advertising cutbacks.

Leave a Reply