StarHub – BT

Higher phone subsidies pull StarHub Q1 profit down

But telco expects better earnings later, with higher ARPU of smart phones

STARHUB'S first-quarter net profit was almost halved from a year ago as its cost base skyrocketed after taking a bite at the Apple iPhone and other Web-enabled handsets.

The operator yesterday reported a net profit of $42.7 million, a 48.3 per cent drop from $82.5 million last year when the global recession was in full swing.

Earnings per share for the three months ended March 31 was correspondingly slashed to 2.49 cents, from 4.82 cents a year earlier. StarHub's Q1 operating revenue rose 5 per cent to $557.2 million.

'It's been quite a challenging quarter,' said StarHub CEO Neil Montefiore in a conference call yesterday.

Despite the bottom-line decline, the operator is keeping to its promise of paying shareholders at least 20 cents this year. It has proposed an interim dividend of five cents per share, up from 4.5 cents a year earlier.

StarHub's Q1 profitability was dented by an increase in its operating costs due to higher subsidies for smart phones such as the iPhone.

The firm's cost of sales climbed 26 per cent to $249.2 million in the first quarter.

This was because its cost of equipment nearly doubled to $93.8 million as a result of heavy handset subsidies, particularly for the iPhone. StarHub's operating expenses also grew 11 per cent to $250.3 million due to staff bonus payments and other items such as an increase in its operating lease.

The January-March timeframe marked the first full quarter since StarHub introduced the iPhone last December alongside rival M1.

Singapore Telecommunications got its hands on Apple's handset a year earlier. M1 and SingTel's profitability took a similar hit shortly after their iPhone debut.

Instead of subsiding after the first month, the iPhone fever continued to rage on in the first quarter, Mr Montefiore said.

'Three quarters of the phones we sold were smart phones. Subsidies are higher for smart phones,' he added.

StarHub's policy of writing down the full cost of these handsets at the point of sale means its bottom line will take an immediate hit.

Although the smartphone craze is bad on the balance sheet initially, the operator is confident the growing adoption of these Web-enabled handsets will pay off in the longer term.

'Smart phones deliver higher ARPU (average revenue per user) of around $10 more,' he said.

Revenue increased across half its business lines. Sales at StarHub's mobile division, which accounts for 51.4 per cent of its revenue, climbed 8.1 per cent to $286.3 million. Fixed network business revenue edged up 1.1 per cent to $79.9 million.

Broadband sales slid 4.6 per cent to $59.5 million, while its cable television sales fell a marginal 0.4 per cent to $101.6 million.

During the quarter, the Media Development Authority (MDA) introduced a controversial policy which has a major impact on local pay-TV providers StarHub and SingTel.

The new cross-carriage mandate forces operators to share any exclusive content they sign from March 12. To stoke the flame even further, the regulator is also looking into a possible leakage of this policy change before it came into effect.

Mr Montefiore said the company has submitted its feedback to the government on the new ruling under an MDA industry consultation exercise which ended yesterday.

StarHub shares closed one cent down yesterday at $2.27.

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