Telecom changing name to Spark, entering TV market

Telecom [NZX: TEL] is changing its name to Spark.

NBR understands Saatchi Worldwide has been working on the brand relaunch.

Telecom has put up a website promoting the name change. The starburst logo (already nicknamed "the spark") will remain.

On a conference call, CEO Simon Moutter said the relaunch would be around mid-year.

$20 million has been budgeted for the rebrand, which will also see Telecom's Gen-i services division become Spark Digital Solutions.

TV launch
The two other non-financial highlights of Telecom's earnings release this morning were that it's launching its own "high quality" internet TV service, branded ShowmeTV, and a boost in mobile numbers.

"ShowmeTV will be accessible to non-Telecom customers," spokeswoman Lucy Fullarton told NBR. 

That's a big move, and a key move. Opening ShowmeTV to customers of all ISP addresses the problem of scale (raised by NBR as a key issue after Telecom dissolved its low-key marketing alliance with Sky TV earlier this month). The likes of Netflix or HBO would be unlikely to align with Telecom if its TV service was limited to the 50% or so of the retail market controlled by the telco. Depending on the resources Telecom throws at ShowmeTV, and the breadth of content it secures, the new service could provide Sky TV with its first true competition - particularly if Telecom expands it alliance with Coliseum Sports Media, owner of PremierLeaguePass.com. Coliseum has already shown interest in bidding for All Blacks rights when they next come up in 2015.

Mr Moutter has previously told NBR that setup boxes are going the way of the dinosaur. Like many, he saw so-called "over-the-top" content (TV shows and movies delivered over a broadband internet connection to a television) as the future.

On a conference call, the CEO said content deals were currently under discussion. For competitive reasons Telecom won't comment further before Showmetv's official launch, he said.

Enough money on the table?
ICT Minister Amy Adams and InternetNZ were both quick to praise Telecom's entry into the TV market.

Content delivered over fibre, or a fast DSL connection, is seen as a driver of broadband uptake - and Sky TV's hold on key sports, premium TV series and new release movie content has been seen as preventing new market entrants from gaining a critical mass of content. Sky TV has the technology to hook up its decoders to fibre, but no commercial incentive to do so at its current pricing, let alone offer a killer-price broadband and content bundle.

Yet while the concept of ShowmeTV is exciting, and Telecom has a lot more financial muscle that squirts like Quickflix and Ezyflix, for the moment the new service seems to be a tipping-toes-in-the-water exercise.

Mr Moutter told NBR the budget for ShowmeTV this year was $20 million; around 75% in that in op-ex; the balance in programming costs. To compete in full blooded fashion with Sky TV, Telecom will have to ramp up that spend. Last year, Sky TV spent $289 million on programming (of total expenses of $666 million).

And becoming a compelling alternative to Sky TV is what ShowmeTV has to do to make a splash. Viewers who just want to dabble in over-the-top content already have plenty of local alternatives, including Quickflix, Ezyflix, the film and TV content on Apple TV NZ (and the readily accessible Apple TV further afield), plus the US-based giant Netflix within easy reach (not to mention those using the Torrents).

ShowmeTV will have 5,000 hours of content across all genres when it launches, Telecom says.

That compares to the 60,000 films, television programmes, documentaries and sporting titles held by ASX-listed Quickflix, and is dwarfed by the content on California-based Netflix - and Mr Moutter used the phrase that Telecom wants to create "the Netflix of New Zealand", raising the prospect of all-you-can-eat viewing for a set low cost per month (Netflix costs from $US7.99 a month).

The bind is that sophisticated users already use over-the-top services, and average punters won't pay for an OTT service like ShowmeTV, with a sub-selection of content, on top of their Sky TV bill. Or at least it's a tough sell, as Quickflix slow progress in NZ, and Telecom and TVNZ's failure with the TiVo Caspar on-demand service shows.

Mobile gains
Telecom - which made a net gain of 92,000 mobile subscribers in the first half, said it made a full-year gain of 200,000 for a total of around 1.92 million. Vodafone recently said it had 2.29 million total mobile customer connections. Privately-held 2Degrees has never reported in detail on customer numbers, and has not provided a big-picture update since August 2012, when it claimed 1 million customers.

Telecom's mobile subscribers topped 2 million in the first half of 2012 before the shutdown of its old CMDA network and a "reset" of the numbers saw total mobile customer mobile connections fall to 1.72 million in the second half of that year. It has been on a recovery track since.

In its numbers released today, Telecom says it has 948,000 customers on contract (vs 908,000 in the prior six months), and 967,000 on prepay (vs 895,000).

Average revenue per user (ARPU) fell from $54.84 in the prior half to 53.89 for mobile customers on contract. Telecom Retail CEO Chris Quin says the fall reflects the fact more customers are now buying their own phones, with the upside being lower handset subsidies.

Pre-pay ARPU rose from $11.92 to $12.01.

Total mobile customer ARPU fell from $33.55 to $32.78., but mobile revenue rose 5.8% overall to $487 million as 108,000 new customers came onboard.

Mr Quin said his company held the line in fixed broadband, with around 50% market share.

Profit edges up, Ebitda falls
The company reported a profit for the six months to December up 2.5% to $167 million.

Forsyth Barr senior equities analyst Blair Galpin had been expecting around $165 million., while Goldman Sachs had estimated $154 million. For the same period last year Telecom made $163 million.

Earnings before interest, tax, depreciation and amortisation from continuing operations fell 5.8 percent to $452 million, while operating revenue from its remaining business slipped 3 percent to $1.85 billion.

While there were modest gains in mobile and IT services revenue, voice calling continued its inexorable decline, and a competitive fixed line market saw broadband revenue dip.

Read NBR's full report on Telecom's earnings here.

Telecom shares [NZX:TEL] were down 2.69% to $2.35 in early trading.

ckeall@nbr.co.nz

Follow @ChrisKeall