Spark and Chorus' financial results are in, with the two telco providers heading in different directions

When Telecom New Zealand was structurally separated into Spark and Chorus, it looked like the latter got the rough end of the pineapple in the deal, being handed the difficult task of building a new infrastructure for much of the country: the Ultrafast Broadband (UFB) fibre to the premises network.

Nobody really knew if the UFB would pan out. Would people buy into it, particularly with large segments of telco industry opposing the fast speeds and unlimited data caps which threatened their current business model? 

Spark meanwhile got the mobile phone network, and kept the profitable Southern Cross Cable. It was able to diversity its business and dip its toes into other tech waters like Mattr for digital identification, data centres and IT services provision.

Last year, Spark did what lots of mobile telcos have done, and sold mobile tower network assets for $583 million, which goosed up the numbers for 2023.

This year it's different. While its traditional mobile business is doing well, with service revenue going past $1 billion for the first time, Spark's had a rough 2024 financial year overall.

“Public sector spending cuts and deferred private sector investment had a significant impact on IT services revenues, while lower household and business spending impacted mobile devices and accessories sales, and intensified competitive pricing pressure, particularly in business mobile," Spark chair Justine Smyth noted.

Earnings before tax, net profit and free cash flow all declined despite mobile doing well, to $1.163 billion, $316 million and $330 million respectively. We'll see if the dented figures translate into work force cuts this year and next for Spark.

At Chorus, the financial results for the year ended June 30 were described as "steady" instead. Interestingly, Chorus described the full-year as its first normal operating period after the pandemic, workforce and weather challenges of the last few years.

Long story short, Chorus upped operating revenue to $1.01 billion, and earnings before tax to $700 million on the back of increased fibre connections; Chorus is targeting 80% fibre uptake by 2030, up from the current 71.4%.

Chorus is not immune to the economy taking a beating, or the government wanting more tax revenue:

"A net loss after tax of $9 million was reported compared to a profit of $25 million in FY23. This was due to a combination of a one-off $15 million non-cash tax expense following the removal of deductibility of tax depreciation for buildings, an $11 million increase in depreciation from our accelerated depreciation of copper assets, and higher interest costs."

Despite that, there's a decent dividend, 47.5 cents per share coming up for the full 2024 year.

Next up, Chorus is looking at getting rid of ye olde copper network for good, and replacing it with fibre-optic as much a possible. New chief executive Mark Aue said just 45,000 copper connections remain in fibre areas (157,000 in total are left).

Chorus hopes to consign the metallic connections to telecommunications history by the end of 2026, and wants copper regulation to be gone, as it's no longer fit for purpose, it said.

Related: last time I checked on what will happen to the copper cabling, Chorus didn't appear to have any plans to remove it. Given that copper is in high demand for the foreseeable future, maybe there's room to rework the economics on that.

Aue said over 1250 copper broadband cabinets have been closed, and there will soon be fibre-only suburban exchanges. With less copper to power up, Chorus has been able to continue to drop its electricity usage while providing customers with ever larger amounts of data, almost 8 petabytes, over fibre.

The question now is where Chorus will go next. Aue said the company is shifting to become a simpler, all-fibre digital infrastructure company. That is, Chorus will move from building the infrastructure, to operating it. 

Incredibly enough, the future plans for Chorus do not appear to include artificial intelligence. At least there is no mention of AI in the results release Chorus sent out, and the Metaverse notion has been disappeared as well.

Spark meanwhile is gunning for a slice of the AI action, chief executive Jolie Hodson said:

“The New Zealand data centre market is predicted to grow from ~90MW today to ~500MW9 by 2030, driven by the acceleration of Generative AI and ongoing business migration to the cloud. With Spark’s development pipeline now sitting at 118MW, and three strategic Auckland locations primed for investment, we are well positioned to capture a significant share of this growth and maintain our competitive position in the market.  

Make of that what you will.