2degrees steps into the black

Telecommunications underdog 2degrees has posted its maiden profit, marking the end of a gruelling seven-year startup period.

The company posted a profit of $13 million on revenues of $703m for the year to December 31, confirming indications in a March filing to the Toronto stock exchange by its owner that it was in the black.

Investors still have a long way to go to recoup the money they invested in 2degrees, however.

2degrees racked up more than $397 million in losses, breaking Spark and Vodafone’s duopoly over the mobile market – and then moving into the fixed-line broadband market – before last year’s small clawback.

2degrees appears to have sustained its progress in the first quarter of this year, according to unaudited figures filed with the Toronto stock exchange overnight on Tuesday.

That report said 2degrees’ revenues grew 17 per cent to US$124 million (NZ$180M) in the three months to March 31, with a 49 per cent rise in its operating profit to US$22M.

That was on the back of strong growth in post-paid mobile and fixed-line subscribers.

The progress during the latest quarter came despite a horror start to 2017 for some customers, when problems with a new software system made it difficult for prepay customers to top up their accounts and add services.

That clogged 2degrees’ contact centres, forcing it to take on 80 extra staff. Chief executive Stewart Sherriff said 2degrees was ‘‘almost there’’ sorting out those issues.

‘‘We are back, we believe, pretty much business as usual.’’

He noted that, prior to the launch of its network in 2009, some analysts had cast doubt that the New Zealand mobile market was

"Last year was a turning point." Chief executive Steward Sherriff

large enough to sustain a third mobile carrier. That was given the market appeared already almost saturated with cellphones.

‘‘When we first started, and right up until now, many people have been saying ‘They will never hit profitability; in fact, they won’t even be around for seven years.’’’

But it would be hard to find another company in New Zealand with revenues of $700m that showed the same growth in operating profit, he said.

Australian telecommunications analyst Paul Budde, who is one of 2degrees’ sceptics, said good news was positive. However, given the regulatory settings in New Zealand, his forecast ‘‘remains one of muddling along with marginal gains’’, he said.

Sherriff said 2degrees’ profitability was ‘‘absolutely’’ sustainable. He was confident investors would see an overall positive return on their investment in the company.

The Commerce Commission rejected Sky Television’s proposed merger with Vodafone New Zealand in February partly out of a concern that a merger could have made it hard for 2degrees to compete.