Telecom Q4 result shines light on XT’s progress

Two steps back ...
In its full-year earnings announcement this morning, Telecom said it had that it lost a net 26,000 mobile subscribers during the quarter to June 30. Chief executive Paul Reynolds said most of the disconnects were dormant pre-pay customers.

At the same time, Vodafone reportedly added 9000 subscribers.

Subscriber trends were reflected in market share stats, which saw Telecom's share of the mobile market by revenue falling, yet again, to 37% during Q4, with Vodafone topping 60%.

Analysts will be cautious on taking the numbers as any kind of verdict on XT’s launch, as the new 3G network only hit the market during the last month of the quarter.

In previous quarters, as Telecom prepared to sunset its CDMA network, market share loss to Vodafone had been routine. For the first two months of Q4, that trend continued.

... and one step forward
For the final month, there was a net gain in mobile subscribers, Telecom said, on the back of the XT launch. The theory is borne out by strength in Gen-i’s mobile sales, which are targeted at the top end of the market (post-paid connections fell by 2000) while pre-pay connections fell by 24,000.

And looking at the current quarter, the picture seems sunnier still.

Telecom said that as of August 14, its mobile network had gained 165,000 connections - 35,000 of them new acquisitions, the balance customers upgrading from its old CDMA network (the telcos internal goal is to migrate one third or 638,000 of its CDMA customers to XT during the 3G network’s first year.

Dr Reynolds said 165,000 represented about 10% of Telecom's total mobile customer base. The chief executive claimed Telstra only converted 3% of its customers over a comparable period.

72,000 of the 165,000 were post-paid customers.

Other metrics look strong. Voice traffic - which leads to higher arpu (average revenue per user) than txt, is 20% higher on XT than CDMA.

XT customers are also downloading 300% more data than the compatriots still on CDMA.

And Telecom’s retail stores - last quarter identified by CFO Russ Houlden as a weak link, especially in Auckland - are generating three times as much revenue since the launch of XT.

So, does that make XT an unqualified hit?

Not where there's still one big unknown.

Analysts are withholding their verdict until Telecom details XT subscriber-acquistion costs (SAC), such as marketing and handset subsidies, in its results next quarter.

Dr Reynolds would not give any indicative SAC figure for XT's first month when asked by NBR.

Coming next
The chief executive reconfirmed Telecom's intention to upgrade XT to HSPA+, with "peak speeds of 21Mbit/s" nationwide before Christmas.The cost of the upgrade is included in XT's original $574 million cap-ex.

Vodafone has a similar upgrade going into an Auckland trial in October, with a wider roll-out some time during 2010.

Another focus is increasing Telecom's (iPhone-friendly) 2100MHz coverage.

Dr Reynolds declined to comment on any discussions with Apple on the iPhone.