Austar fails to pull out its digital

For the six months to June 30 Austar added 3389 customers, less than half the number expected, and customer churn increased despite the introduction of the MyStar digital video recorder.

Mr Porter conceded that Austar underestimated the "consumer malaise" in the first half, but talked up the strong cost control, stable customer base, and growth forces such as MyStar, which helped generate 4 per cent revenue growth from its customer base despite the trying environment.

The prior first-half result was boosted by a $21.7 million one-off gain on interest rate swaps, which reversed to a $2.7 million loss for the half-year just ended. The reversal of fortune on its derivatives failed to hide a disappointing operational performance.

"Subscriber growth has continued to be a challenge," Mr Porter said on a conference call yesterday.

He said that unlike the rest of the world, where consumers really battened down the hatches in 2009, Australians did this during the fiscal year just ended as higher petrol prices and interest rates hit home and the fiscal stimulus wore off.

The company was not prepared to offer a forecast for the remainder of the year despite signs of improvement. Austar said its June sales were its best since March 2009.

"It looks a lot better for the second half of the year," Mr Porter said, while cautioning the company did not know if it had turned a corner.

He rejected analyst views that the growth slowdown was related to new free-to-air digital channels, which could be acting as a pay TV substitute. "The growth challenge is most definitely a cyclical issue and not a structural one," he said.

Austar does not pay a dividend and was cautious about a capital return. The company indicated that there was an appetite for debt in the market, but debt pricing would have to come down before a capital return was contemplated.

Austar shares dropped nearly 8 per cent after the release of its results, but closed 3? lower at 98.5?.