Optus: Mobile drives performance

Nathan Burley, Analyst, Ovum

AUSTRALIA: As usual the Optus results are all about mobile, which represents 63 percent of Optus revenue and 68 percent of Optus EBITDA. Mobile revenue for the quarter was up 10 percent YoY and EBITDA up 5 percent YoY, as margins continued to decline marginally.

In our view, this is a good rather than great performance, with Optus only slightly outgrowing the industry in Mobile. But, we will not know for certain until Telstra and VHA numbers are announced Thursday and later this month respectively.

Optus postpaid additions and ARPU were up, however most growth appears to have been in wireless broadband and wholesale rather than retail voice.

Increasingly, success in the Australian mobile market will be driven by data services. Attaching the Optus brand to the Apple iPhone in 2008 was a master stroke and among drivers of Optus more recent stronger mobile results. However, as we have seen in other markets iPhone subscribers rarely have strong affinity with their network operator. Preventing these high-value iPhone customers from going elsewhere will be key.

On numerous occasions, Optus has stated its ambition to challenge Telstra’s number one position in the mobile market. However, it looks more likely to be fighting with VHA for second-spot in our view. Ovum estimates VHA service revenue is now within less than 5% of Optus.

Optus also still has plenty of lost ground to make up in 3G. As of December 2009, still only 41 percent of Optus mobile connections were 3G, Telstra reached this figure in June 2008. Optus, however, has been investing in 3G to catch up, and only this week announced the purchase of a further 10MHz of 3G spectrum to improve capacity.

Outside of mobile, Optus continues to tread water in its Consumer and SMB fixed division. Fixed broadband subscribers were flat on the previous quarter, and its on-net strategy has failed to deliver much in the way of EBITDA growth. Business Fixed results were unspectacular, while Wholesale Fixed was weighed down by declining voice revenue.