Saturday, February 28. 2009Reporting 'Season' - Telco's Doing It ToughJohn Linton As the dead line for the half year filings with the ASX drew to a close yesterday all but TPG and Eftel had filed their half year financial reports (though Eftel's did 'appear' after 6 pm Eastern Summer Time). There was nothing to make any positive impact, despite the spin, and if considered as a whole it shows the telecommunications market in various sorts of trouble. Telstra, with its overwhelming market dominance, obviously provides the best guide to what's happening in Australian telecommunications and, irrespective of what Telstra flaks may try and say, shows a company under competitive pressure - not from its competitors, but from its own inherent problems of holding back new technology for so long (and don't bring up its lead in HSPA as an example of how it introduces new technology quicker than any other company - it was one investment out of more than a dozen monumental failures; and that lead in HSPA will disappear within two years). What is now blindingly obvious (even to Telstra?) is that VoIP continues, now at a noticeable pace, to erode the use of wire line calls and also wire line revenue. Telstra, in their public statements, make the ridiculous assertion that "'people' are making less calls because of the grim financial conditions" - what a crock. The reality is that people' (and increasingly corporate Australia) is making less wire line telephone calls with Telstra because who in their right mind would use Telstra PSTN/ISDN when you can use VoIP with every other carrier and provider? So Telstra's profits are slightly down and they have downgraded their forecast for the 1/1/09 - 30/6/09 period quite substantially. Their predicted growth in revenue is now well below double digits and may be as low as 5% for the full year. As Telstra has such a large share of the Australian market this in turn means that overall growth in Australian telecommunications will be well under double digits. Optus also reported a significant slowing with profits down and revenue growth slowed well below double digits. AAPT's figures were not available in any detail but its parent company, Telecom NZ, reported a horrible six months. These three companies account for something like 85% of telecommunications revenue in Australia so whatever else is reported will make no difference to the key metrics of the 'industry'. Of the smaller companies iinet, as usual, trumpeted its fantastic growth using its usual smoke and mirrors obfuscation - it is so blatant it could be regarded as just plain dishonest. How stupid do iinet think their shareholders are to compare figures from 2007's December half year, prior to the WestNet takeover, to December 2008's half year which includes WestNet's revenue and profit figures? Obviously they think they are morons. Ignoring the stupidity of adding another company's revenue to your own and saying "Wow, look at how much we've grown!" the underlying financials tell a very different story and iinet's balance sheet is probably the third worst of the telecommunications public companies if you can do simple additions and subtractions. You can find the information for yourself here: http://www.asx.com.au/asxpdf/20090225/pdf/31g7p9t396gv54.pdf See whether you would invest in a company with a balance sheet showing a large deficit of current assets to current liabilities. Macquarie Telecom finally announced a profit after so many years of losing money on its $A250 million turnover but it too underlined how quickly wire line calls and line rental were eroding by stressing its revenue and profit were coming from hosting and data services which while lower revenue were profitable. People Telecom continued to 'slim down' its personnel and reported a small operating profit on a reduced revenue but still made a loss as it was forced to write off $A5 million in "good will" and there's little doubt that the remaining $A10 million of "good will" is as worthless as the value it has been forced to write down in this period. Not that it matters as PeopleTelecom will soon be "tipped in to the bucket" of failed communications companies that is M2 which has a balance sheet that is easily the second worst of all public telecommunications companies. It would appear that M2 rely on Optus' generous trading terms to continue to operate looking at their reported figures. The prize for the company with the most imaginative balance sheet, for the fifth successive year, and also the largest loss although the tiniest public communications company, by far, goes of course to Eftel who on a tiny six month revenue of around $A18 million managed to lose $A1.7 million - trading at a loss for the period of almost 10%. The Eftel balance sheet figures appears to make a mockery of the directors claims of solvency, but please make your own judgments: http://www.asx.com.au/asxpdf/20090227/pdf/31gc1v3g807gdc.pdf In the announcement that separately accompanied the figures they have tried to 'sweep under the carpet' their perilous financial situation with a bland statement to the effect that: "they are hoping that Huawei will agree to provide further free financing over the $A3 million Huawei provided the ADSL2 network for as they can't pay for it as previously agreed". Further they are having to pay far more for it than they had hoped because they were too stupid to buy forward cover for the contract payment dates on the A$ which has fallen around 30% since the 'deal' was signed. Talk about babes in the wood. Not only has the company not grown in revenue (after adjusting for inflation) after its "take overs" of other even tinier failed ISP and related companies but its deficiency of current assets over current liabilities has grown more over the reporting period (even assuming that the ADSL2 network debt is allowed to be deferred) and it has also had the chutzpah to INCREASE its goodwill! They proudly state that they have been "cash flow positive" for five years yet they have accumulated losses of over $A20 million in the same time - work that out if you can. Funny water they must have in Perth - and very forgiving creditors. So taken as a whole (and wondering why TPG missed the ASX reporting deadline for the second time in a row as it should have been the one bright star in the ever darkening telecommunications sky foreshadowing as it has as late as November 2008 that it wold make over $A90 million in profit this year) the Australian telco industry is going through a bad time with the next six months being predicted as even gloomier. On the bright side Exetel has had an excellent February with sales in 9 of our 10 services all being higher than January, itself a good month, and 4 of the 10 posting new records. Perhaps we were right not to borrow money to invest in ADSL2 DSLAMs? Trackbacks
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I have used a number of ISPs over the years before I came to Exetel.
One ISP provided really low cost ADSL2 services - but went broke because its business plan relied upon Govt subsidies - which were not paid to them. I have been reading your blog for more than 12 months now - and I get a real feeling of "comfort" knowing that Exetel's revenues and profitability are increasing (even in these troubled times). Harry. Comment (1)
Wile this is a survey of a small slice of users (just shy of 20,000) I think it's big enough to see some trends, if you read between the lines you can see which ISP's are going to be in trouble soon http://whirlpool.net.au/survey/2008/
Comments (4)
I think if you look at the patterns for each ISP you can see their weaknesses, for me AAPT stood out for a number of reasons
43% of customers were first time broadband users (ok so a first time user so you need to hold their hand a bit) 40% of customers had to phone up to check the progress of their new connection (no automation here it seems) 86% of customers rely on telephone support (not very cost effective) 50% of those support calls are answered in under 10 minutes (would imply a reasonable quantity of staff to deal with the amount of calls they get) 25% of users only are happy with the price of the service 11% of their users found out about them from TV or radio (not a cheap way to find customers) So they have expensive support costs, largely based on telephone support, if 86% of respondents had to use telephone support it seems to indicate they don't have good systems in place so they are inefficient to the extreme, the running cost of each customer must be quite high so after all of that are the customers happy though? 73% feel they are too expensive (rightly so with all the back end costs they need to maintain) 72% wouldn't recommend them to anyone else The bulk of their customers are on either 12 or 24 month plans so they have some security in that but their churn out rate should only grow with such high rates of dissatisfaction So what will they do to counteract this, more advertising I would suspect Comments (4)
A very precise and insigtful view of AAPT Retail.
There go to market model is totally wrong. Comments (5)
To be honest I know nothing of the AAPT business, have never looked into it and don't know anyone that uses them, that was just my interpretation of the figures presented in that survey, I would image their P/L's would reveal similar trends
I would agree that their business model is incorrect though from what the figures reveal, anyone that inefficient has to be in danger in the current financial climate Comments (4)
I was just about to post a link to the survey, Exetel excelled in several areas and are made a lot of improvements over last years results in areas that matter.
Extracts - 88.7% of customers would recommend Exetel to others 43.9% of customers believe they are getting "great value" for money, second closest ISP was Amnet with only 23.6% believing they were getting "great value" 92.9% of customers felt pricing was what they liked most about Exetel 34.2% of customers seek support via Exetel forum, higher than all competitors (not sure if this is a good thing, but interesting still) Exetel had the least issues with ADSL installation out of all ISPs reviewed, 'big' name ISPs fared the worst 57.8% of customers were in a 4-6 month, least restrictive ISP reviewed * 68.7% of customers researched using Whirlpool and 49.2% researched through Broadband Choice (customers seem to get opinions from Whirlpool) They are some cherry picked findings but I think they show a positive trend for Exetel overall. While other Telcos might be doing it tough seems like Exetel are focussed on their goals. Congratulations Comments (2)
I don't how seriously you could can take this survey, when 75% of the respondents think FTTH is a worthwhile investment. I was probably one of those. Sure I'd love it, but I wouldn't pay for it. I would be interested in knowing how much FTTH costs over FTTN in well populated areas.
But what I don't get, the power companies (at least in Perth) are slowly rolling out underground power, they're putting communication cabling down too. Why isn't that fiber? But what do I know That dark fiber really would be in the 'free beer' category! Comment (1)
I don't how seriously you could can take this survey, when 75% of the respondents think FTTH is a worthwhile investment.
Not to mention the 1.1% who dislike their Exetel service, because they're not allowed to run servers... or the 0.4% who joined Exetel because of the newspaper/magazine adverts... or the 2.1% of Exetel customers who are on 18mth and 24mth contracts. I guess any survey is only as good as it's respondant's intelligence level. Comment (1)
There is always a margin of error, but if you even allow 5% +/- then you still get some very interesting facts.
The figures I pulled weren't ones in which Exetel had been beating the competition by a small margin, but usually by a significant lead. Statisticians say a sample group must be at least 30 people in the test (iirc) and there were plenty more in the WP Broadband Survey. You'll never get honest, knoweldgable reports no matter what survey, so I think the large amount of those questioned will make up for that. Of course, you wouldn't base your business practises of such report, but you might glance at it and find it quite interesting despite the friction with Exetel and Whirlpool, users were quiet happy with Exetel. Comments (2)
TPG reporting dates end on 31/1/9, so their figures will be out mid-late march.
Interesting to see if they are track for the 93 million yearly profit. 1st month they made 7.7 million on the asx announcement. Eftel, are they seriously kidding themselves if they think they can be around in 12 months time Comments (2)
Apparently they seem to think so.
http://forums.whirlpool.net.au/forum-replies.cfm?t=1152071 Comment (1)
There must be something they drink in Perth that allows them a Red Queen attitude to "facts".
John Lane states that the loss was expected. He seems to forget that Simon Ehrenfeld's last annual meeting address: http://www.asx.com.au/asxpdf/20080829/pdf/31c18s0rnh3622.pdf claimed that the new infrastructure had aded 65% to the company's profitability and that the future was so rosy that they were paying a dividend out of this profit. No hint of the massive profit readjustments to come once the new auditors looked at those results that the old auditors refused to sign off on. Incidentally the losses were shown as trading results and had nothing to do with write downs - as I commented - they had the cheek to actually increase their "good will" - not a hint of a write down there. So if youlook at the only place such a write down would have occurred it woud have been under "communications costs" which shows a minor increase over the previous 6 month period. The damning statistic though is the fact that the revenue increased by less than 5% while slary and rent increased by almost 10%. That's a company whose lack of control of expenses and optimistic estimats of future revenues continues to incur losses that some generous creditors are funding - they surely aren't making pprofits with base operating costs growing 5 times faster than the profits on a 5% revenue increase (at best 30% gross profit on revenue). Comments (5)
Do you include Ars Technica in your regular reading??
Probably not, but I think this article might be of interest to the readership of this blog... http://arstechnica.com/gadgets/news/2009/02/cellular-providers-want-nokia-to-drop-skype-from-cell-phones.ars Of course no Australian carrier would pressure a device manufacturer like that ... would they? Comment (1)
I usually only read it when it's referenced in another article.
VoIP is going to change mobile usage just as it has changed PSTN/ISDN usage - it's only a matter of time. Comments (5)
I think VoIP shone through in that Whirlpool survey also, only 30% of those surveyed were,'t interested in VoIP, 40% are using VoIP exclusively, 30% using it for most calls and 86% are satisfied with the call quality
That's a good set of numbers in my view and a very strong indicator that VoIP will only continue to grow Comments (4)
(*only 30% of those surveyed weren't interested in VoIP, 40% are using VoIP exclusively*)
... and a further 30% are not currently using VOIP but are "interested in using broadband to make phone calls". I wonder what's holding them back? Comment (1)
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