Telecommunications Services of Trinidad and Tobago Limited (TSTT) today announced a profit warning, advising that based on its current estimates, the Company will likely declare a first ever post-tax operating loss. The Company’s current preliminary estimate of this loss is TT$122 million for the financial year ended March 31, 2007 as compared to a post tax profit of TT$261 million for 2005-2006.

The 2006-2007 Financial Year was significant for TSTT in several ways. Unlike incumbent operators in most newly-liberalized markets, the company retained significant leadership in the mobile market by nearly doubling its mobile customer base to over one million customers. However with its aggressive response to competition, the company incurred a substantial increase in operating costs, reflected in its current financial results.

Impairment of Assets

Standard accounting practices required TSTT to evaluate the carrying value of its assets regarding their ability to generate revenue in future years. Therefore, consistent with international financial reporting standards, the company estimated an asset impairment of TT$187 million (un-audited). An impairment of this type is common within a rapidly changing, technology-intensive business in a competitive environment. This one-time, non-cash, charge represents a book loss and does not negatively impact the company’s day-to-day operations. Further, taking impairment during this financial period actually positions the company more favourably for future profitability as it reduces continued depreciation on the impaired assets.

Overall Financial Position

TSTT maintained significant gross revenues – TT$2.877 billion – for the 2006-2007 Financial Year, a slight decrease from the TT$2.933 billion gross revenues reported for 2005-2006. Gross revenues, therefore, remained relatively flat, even in the face of increased competition. A major portion of this decline in revenue can be attributed to price erosion in the international long distance market where revenues declined from TT$379 million in 2005-2006 to TT$290 million this year.

TSTT’s focus on defending its revenue streams and expanding its mobile customer base led to a TT$311 million increase in customer acquisition costs. In addition, TSTT experienced several other exceptional expenses contributing to its operating loss. Specifically, weak financial and operational controls that have since been rectified, in the areas of international roaming fraud, prepaid fraud, and bad debt, resulted in losses of nearly TT$100 million.

Unanticipated payments for maintenance of outside plant due to cable cutting, vandalism, and one-off maintenance support costs for the mobile network, amounted to TT$25 million. Expenses related to obsolete network infrastructure write-off contributed another TT$94 million in book losses.

Renewed Customer Focus

The Company is restructuring its organization to address customer needs, ensure increased competitiveness, and drive business performance. "While I have been here only a short time, I can speak for all TSTT employees when I say that we are not satisfied with these results. The difficulties that we are facing are no more than to be expected in the early stages of a liberalizing market,” said newly appointed Chief Executive Officer Roberto Peón. “We are determined to get the company back on track to better financial health in the long term. We are encouraged by the fact that unlike the performance of other competitors in the market, the company maintains a very strong balance sheet. Our ability to transform and compete successfully is in the best interest of all our stakeholders and indeed all of Trinidad and Tobago," he added.