iiNet first half profit drops behind budget

Shares in Perth ISP iiNet Ltd dropped almost 10 per cent after the market digested a subdued profit forecast and new uncertainty regarding Telstra's network access.

iiNet shares dropped eight per cent in early trading on the back of both sets of news and then declined to close at $1.78 each, against yesterday's $1.97 closing price.

iiNet released a profit forecast of $40 million (EBITDA) with a warning that its first half has already dropped behind budget as the issues surrounding access to Telstra's network continues to create uncertainty for the company.

EBITDA projection for the December 2005 half of $16.4 million being lower than the budgeted $19.1 million.

In the company's business update released late yesterday the ISP stated the business is well positioned for 2007 with the step up of DSLAM (broadband) rollout to 90 per cent of metro by January 2007.

However the market euphoria over federal government maintaining regulatory restrictions appears to have waned following news the government may be rethinking its position.

To add to the confusion over network access, today iiNet also received notice ACCC intends to proceed with the investigation and arbitration relating to three access disputes lodged by iiNet and Chime Communications Pty Ltd, a wholly-owned wholesale telephony and data service provider of iiNet.

The access disputes are in relation to the supply of the Unconditioned Local Loop (ULL) service, Line Sharing Service and Domestic Transmission Capacity service from Telstra to iiNet and Chime.

As the matter is still proceeding, iiNet is unable to comment further on the dispute or likely outcome.

Below is the overview provided:

- Existing build strategy confirmed and accelerated
- Change in Telstra attitude to wholesale channel but mitigation
strategies commenced and FY06 impact quantified
- Projected FY06 EBITDA of $40m
- DSLAM (broadband) and MSAN (telephony) builds on target
- Accelerating DSLAM rollout to 90% of metro by January 2007
- OzEmail integration complete but significant short term impact on
customer service
- Contact Centre remediation on track and performance improving
- iiNet brand gaining traction
- Business well positioned for FY07