Optus, the subsidiary of SingTel (ASX: SGT) and Australia's second largest telco, just reported a somewhat disappointing third quarter, with revenues dropping nearly 6% to $2.28 billion.
It's the third quarter in a row the telco has reported a declining top line. Yet cost-cutting measures — mostly in the form of head count reductions — are helping the company to become more profitable. Leaving out $30 million of redundancy payments, Optus' profits grew modestly, rising 2.7% to $181 million.
Optus' mobile segment missing out?
This dynamic played out primarily in Optus' mobile segment — which accounts for over 50% of Optus' total revenue. The company saw lower customer acquisition and retention costs and reduced overhead, which contributed to modestly increasing profitability despite a sales decline.
Postpaid customers rose by 58,000, growing to account for nearly 60% of Optus' mobile customer base, but the prepaid customer base decreased by 36,000, in part because of lower device subsidies.
During the quarter, Optus also moved to expand its 4G coverage to Brisbane and the Gold Coast. Yet Optus' push into 4G hasn't translated to strong customer growth. In the last six months, Optus has acquired just over 50,000 new customers net, while larger competitor Telstra (ASX: TLS) acquired some 600,000. Vodafone, which is 50% owned by Hutchison Telecom (ASX: HTA), for its part has continued to see net losses in its customer base.
Broadband and telephony flat or down
Optus' broadband segment grew just over 1% for the quarter while the business and wholesale fixed-line division had sales dip just under 1%.
The company's consumer fixed-line business saw its sales decrease by 6%. In contrast, Amcom (ASX: AMM) which serves business customers in Adelaide, Perth and Darwin, saw strong sales growth with first half revenues rising nearly 50%.
Your takeaway
Optus' focus on costs is admirable (though we never like to hear of people losing their jobs). But in the end, cost cutting measures can only take a business so far. Without growth in the customer base, Optus' future appears stable at best and unexciting at worst.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.
