The telecom's revenues are growing but so are its cost of sales, which have translated into dampened net profits, down 40 per cent in its first quarter, April-June.

Its shares traded at 75 cents Thursday, 13 cents above its all-time low of 62 cents.

President Rodney Davis, a Jamaican/Canadian, had a two year blueprint to return the 113-year-old C&WJ to market dominance, but on Wednesday, though he said his plan was on track, he acknowledged that the company, which began facing real competition at the turn of the decade, had not yet got used to operating in a market with rivals.

The C&WJ mindset, said Davis, who was Chief Financial Officer of Cable and Wireless Barbados before his selection to head the Jamaican operation last July, remains at "a relatively early stage of migrating to a competitive mindset."

That culture has survived former CEOs Errald Miller who resigned 2003, Gary Barrow who gave up the post September 2004, and Englishwoman Jacqueline Holding who departed mid-2005.

The company's most recent financials indicate that its gross revenues were up by more than 5 per cent to $5.98 billion for the quarter ending June 30, compared with $5.68 billion for the corresponding period last year.

"Revenue is going in the right direction," said Davis in a Financial Gleaner interview.

He cited it as a key metric demonstrating that the strategy of revitalising the mobile division and growing broadband is working.

The company's first quarter financial report shows that C&WJ registered gains in usage from its wholesale services; mobile, whose revenues grew 22 per cent over the corresponding period in 2005; and

ADSL which had a 325 per cent growth in its monthly average subscriber base; and voice-over Internet protocol (VoIP).

The growth in ADSL occurred alongside a price drop and aggressive marketing that incorporated telemarketing techniques.  The company is now running a new 'Back-to-School' promotion that offers high speed Internet at $100 installation - the normal sign up cost is US$39.95 - but only if the subscriber hooks up for a year.

The positive impact of ADSL's high growth in revenues to the bottom line was partially offset by falling ADSL prices, described as a "44 per cent compression in average product yields", and by declines in fixed voice revenues due to a decrease in fixed line rental revenue.

The small growth in first quarter revenues was quickly eaten up by a 33.8 per cent jump in the cost of securing sales, from $1.62 billion to $2.17 billion, along with a 14.5 per cent increase in depreciation costs from $685 million to $753 million, and a 48.2 per cent increase in net finance costs from $176.9 million to $262 million.

These rising costs contributed to falling net profits, which at $365 million for the review quarter were 40 per cent below net profits of $609 million for the first quarter of the previous financial year.

According to Cable and Wireless's consolidated financial statements for the quarter, its performance was due to the absence of a one time 'gross margin benefit' in 2005 and a falling number of fixed line subscribers and revenues.

Gross margin benefit

Davis describes the "gross margin benefit" in the 2005 figures as a credit from the inclusion of a "long negotiated settlement related to recoveries from vendors involving the performance of the pre-paid platform."

Operating profit for the quarter declined by 27 per cent or $302 million to $818 million compared to the previous year.  Excluding the one time 'gross margin benefit' the decline in operating profit was only 12 per cent.

Employee and administrative/marketing expenses were, however, contained registering slight declines of 0.9 per cent to $909 million and 2.1 per cent to $1.33 billion, respectively.

Davis sees further scope for cost reduction as the company's TDMA technology is near the end of its life.  He expects it to be virtually phased out by the end of C&WJ's current fiscal year, having successfully switched customers over to the GSM network.

Capital expenditure on TDMA is negligible, but the ongoing maintenance, operating costs, including labour, and energy are 'significant'.

Earnings per share for the first quarter have also declined 40 per cent, from $0.036 as at June 2005 to $0.022. This compared with full year earnings per share to March 31, 2006 of 12.75 cents.

While Davis did not give an EPS projection for the current fiscal year, he said he expected it to rise quarter on quarter from current levels.

His optimistic outlook, notwithstanding, Pan Caribbean portfolio manager Audrey Williams says the company faces 'significant challenges' and are "always playing catch up", six years after liberalisation.

At five per cent growth, Davies insists, revenues are well within industry standards.

Davis did not disagree with the characterisation of the mobile business as 'brutally competitive', indicating instead that C&WJ was prepared to stand and fight.

C&WJ, he said, "Welcomes the introduction of cable operators to the broadband space."

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