Orion warns on impact of Telstra legal action

Stuart Corner
Sunday, 26 February 2006 12:55

IT Industry - Strategy

ASX-listed telecommunications services reseller, Orion Telecommunications, has reported a net profit after tax (NPAT), pre amortisation of acquired intangibles, of $950,000 for the six months to 31 December 2005, compared to $2.8m for the same period in 2004 and says its results in the current half year will be negatively impacted following legal action against it by Telstra late last year.

In October 2005 Telstra commenced Federal Court proceedings against Orion and its operating subsidiaries in Australia alleging that Orion's telesales agents had engaged in misleading telemarketing activity, unauthorised transfer of Telstra customer's services and had been unduly harassing Telstra customers. Telstra was unsuccessful in obtaining the injunctions it sought against Orion. However Orion was obliged to give the court quite onerous legally enforceable undertakings to redress the type of behaviour detailed in Telstra's allegations.

Orion, in its half year results announcement, claims that: "This matter is now resolved. Orion agreed to make a contribution to Telstra's costs; however the Australian operations are no longer constrained in the same way from any undertaking previously provided to Telstra. The actual costs of this dispute were fully anticipated in the re-forecast of the full year results previously provided."

Orion said that the Telstra legal action impacted its subsidiary Southern Cross Telco in a number of ways. "As a result of the undertakings [given to the court], telemarketing efforts have been significantly reduced, leading to a drop in second quarter sales." The company said that Southern Cross intended to "explore and invest in developing alternative marketing channels which will strengthen its ability for growth in the future."

It added that "Telstra has also adopted a particularly aggressive stance in the telecommunications market. Their increase in wholesale line rental and in marketing and winback initiatives has increased our customer churn in November and December. In response to this, we have recently implemented a more intensive customer retention program, and the results have been promising."

Orion reported "a solid increase in revenues of 9.8 percent [to $44.1 million] over the proforma six months to 31 December 2004, and overall billing customer numbers grew by 13.1 percent in the six months to 31 December 2005."