Thus hammered by 'predatory pricing'

Thus today warned that predatory pricing in the UK telecoms market would kill its hopes of making an operating profit this year – despite booming revenues.

The company's shares dived by almost a third to 11.5p before making a slight recovery to 12.2p.

Bill Allan, Thus CEO, said in a conference call: "We are extremely frustrated by this."

He blamed predatory pricing for the fact that although annual turnover would hit "no less than" £360m, up from £332m last year, profit margins will fall.

Earlier this year he had pointed out that the company needed to win four broadband customers to make the margin of one dial-up user. However, Thus is now to mount a £2m advertising campaign, most of it to promote broadband. The company owns Demon, one of the UK's largest ISPs.

Allan also pointed out that corporate customers are getting such good deals on old technology that they are not moving to the 'new world' of IP-based services as quickly as everyone, especially Thus, had hoped.

Allan said: "We have seen discounting. We have seen rebates on current contracts and we have seen selling below cost."

He declined to mention any competitor by name.

The company made much of the fact that it had achieved free cash flow for four consecutive quarters. But the fact remains that EBITDA will be "not less than" £39m, which is a significant drop from last year's $43m.

And there is now no mention of the hope of moving into operating profit in the second half of this year, as promised in the 2004 annual results presentation in March of this year.

Allan said that the company continued to sign new customers and that it had not lost any, although renewals were being negotiated at a lower price. He expects headline growth of 12 per cent and 18 per cent growth in the company's core data, telecoms and internet business.