Spark New Zealand is expected to continue with its aggressive pricing strategy in order to maintain momentum in the mobile market, Morningstar analyst Brian Han says.
Mobile contributes nearly 30% of group revenue and would be the key driver of future growth, offsetting falling fixed-line revenue.
Rising smartphone penetration and demand for data was likely to boost average spend per customer.
However, the final pricing from the Commerce Commission would result in higher input costs for Spark, he said.
The commission ruled in favour of line network company Chorus
last week, allowing Chorus to increase the amount it charges for others to use its copper line network. The commission did not allow for backdating and Chorus could still appeal that part of the ruling.
Mr Han said in a research note as the new wholesale prices applied from December 16, Spark would see its 2016 financial year input costs increase by about $22 million.
There was no change to the current earnings guidance of 0% to 3% growth on the 2015 financial year.
‘‘If Spark can pass on the full costs, our earnings forecast for 2016 remains unchanged and in line with management guidance.
''However, given the competitive dynamics, the ability to pass on these costs is not without challenges.''
At a glance
THE BULLS SAY
Spark is the largest and provides the most diverse range of telecommunications services in New Zealand.
These characteristics provide reasonable diversity and will allow the company to execute a product-bundling strategy.
Spark has a high-quality 3G network and has secured the greatest capacity in recent spectrum auction.
With low penetration of smartphones in New Zealand, increased adoption of these devices will lift revenue per user.
Free flow cash generation is strong despite ongoing requirements to invest in networks, technology and spectrum.
THE BEARS SAY
Aggressive competition may continue and place downward pressure on earnings and cash flow. Growth in mobile, broadband and IT services may not offset structural declines in fixed-voice telephony.
Failure to stay in front of the technology curve and a lack of reinvestment could result in redundant assets.
