John Linton
......and what will a whole lot of other communications companies do then?
Steve and I discussed the details of the Telstra half yearly results plus the various statements made by the Telstra CEO to the press over lunch yesterday to ensure we understood whatever information (and comment) was available as Annette and I will be going to Colombo on Sunday and while email is a very effective communication mechanism, surprisingly, the 5 hour time difference makes ad hoc telephone conversations much more difficult. Lunch at the chosen restaurant is always very pleasant though yesterday wasn't as good as I remember it - but maybe that was just me.
The overall figures of a very large corporation can never be understood by outsiders and particularly by outsiders without financial analysis backgrounds like Steve and me. So we concentrated on the statements made by the CEO and discussed them in the context of what we see day to day in the marketplaces of which we have some knowledge of. Telstra's 'fiddling round the edges' with its ADSL1 pricing towards the end of 2009 was an obvious reaction to what Telstra saw at that time - which was that companies like TPG were being successful in attracting ADSL1 customers to switch from ADSL1 to ADSL2 and as Telstra had the largest base of ADSL1 customers they would have 'suffered' the most from TPG's success in that respect (the other DSLAM providers would have already transferred their ADLS1 customers to ADSL2 on the exchanges they had activated which, in the main, would be the main exchanges TPG has installed DSLAMs in.
As far as we could see, Telstra hasn't yet addressed the fact that it's ADSL services are priced well above even the most expensive of all other providers and, except where it has ADSL2 exchanges where other suppliers don't (largely in less densely populated areas) no-one in their right mind would pass over the much wider and much lower cost ADSL2 plans offered by other providers wherever there is a choice - at least less than there used to be. So that is one of the key issues that will be interesting to see develop pretty soon I would have thought - how Telstra addresses attracting new ADSL2 users without infuriating the large number of current customers who they have ripped off with their current pricing and, of course, protecting that vastly inflated revenue stream that would be a major profit contributer.
We were also interested in the Telstra CEO's comment that he thought business conditions had now improved greatly over those of 2009. He made that comment in the next sentence to another comment that wire line connections had dropped even faster over the past two months having previously said that competition and pricing pressures were fiercer than ever. Perhaps it was just the editing that had taken the three comments out of their conversational contexts that made them look contradictory when they ended up in print - but they seem directly contradictory. As far as we can see - 2009 in the communications industry was neither tough nor one in which Exetel saw any market share decline in any of the services we offer - it was as tough as most other years we have been in business but by no means the toughest and certainly not the most price competitive.If it was 'tough' for Telstra then that is only because they have tried to keep their different service prices at unachievably high levels as the ADSL market has saturated and the wire line market continues to die.
You only have to look at the Telstra graphs of ADSL new customers from 2005 to 2009to see that Telstra's net adds have gone from hundreds of thousands a year to zero and you can directly map that to the gradual increase in ADSL2 competition where Telstra can't gouge other suppliers by maintaining ADSL wholesale prices above what they sell to retail customers. That ADSL2 build out coincided with Telstra customers gradually accepting that companies other than Telstra offered ADSL service as reliable, as fast (with ADSL2 much faster) and at prices often 50% lower than Telstra did. Telstra's CEO also commented that the Telstra ADSL customer base was eroding from the replacement by their own and other carrier's wireless broadband services.
So what are Telstra going to do? Obviously I would have zero knowledge. If I am reading the information provided by Telstra then it says two things:
1) The degree of pressure on pricing/decline in market share has 'surprised' them.
2) They will offer new pricing/packaging to arrest/turn around the current decline.
Doubtless Telstra have hundreds of business planners, far more intelligent and knowledgeable than I am, who would well know that reversing a decline is a whole lot harder than steepening an incline. It will take a lot more than 're-packaging' the already multi-repackaged 'special offers' to arrest the ADSL decline and to arrest the wire line decline is a Knut like impossibility. Telstra have never shown any tendency in the past to provide services at realistic prices and have ben happy enough to keep their customers on contract paying the highest possible prices while shoring up new customer acquisition by telemarketing 'once only and only for you' discount offers that avoid ACCC scrutiny.....but clearly that hasn't worked lately as well as it has done in the past - as apparently demonstrated in the half year results.
Perhaps the double 'sea change' of mobile and VoIP will wipe out the PSTN revenues more quickly than Telstra's most negative scenarios - there is a glimpse of that in the CEO's different comments. The graph they showed of wire line-less home has risen sharply over the past two years - a well over 50% increase if my eyes don't deceive me. That decline has some pretty serious repercussions for a number of pie in the sky projects widely reported on over the past 12 months or so.
Interesting few weeks coming up.
http://www.smh.com.au/business/thodeys-uphill-battle-for-leaner-pricing-20100211-nv6d.html
http://www.smh.com.au/business/sol-trujillo-was-worse-than-he-looked-20100211-nv22.html
http://www.smh.com.au/business/a-very-expensive-fixation-on-speed-20100211-nv8n.html