Thursday, May 29. 2008The Pointlessness Of Not Being TelstraJohn Linton It's the time of year when all 'good men' (and quite a high proportion of 'bad' men and presumably women of both kinds these days) who are involved or responsible for their company's business planning are reaching the key decision time each year when they have to start 'putting in concrete' (not mafia style) the assumptions and therefore the resultant month by month figures for the forthcoming financial year. I am one of those people who do it the lazy way of not recognising artificial dates such as June 30th in terms of planning (except for 'tax planning') and therefore subscribe to the planning concept of a 24 month forward operating plan that is quite accurate for the immediate next six months and tends to be extrapolated forecast rather than plan after that. Nevertheless it is a serious document that is reviewed in greater or lesser detail prior to each monthly board meeting and, at least to date, has been a fairly accurate document in terms of revenue and reasonably accurate in terms of profit. As Exetel gets slightly larger (though of course we are still very, very small) the dependencies and future ramifications of other company's actions in our marketplaces have more significant effects and therefore introduce higher levels of uncertainty. One of the things I do, and I'm sure many other people involved in planning do, is to look at the published results of companies in similar marketplaces to us to see what, if anything, can be detected from the results that they, being public companies, have to make public. I commented a few weeks ago that there seemed to be very, very few public companies that actually made a profit providing communications services and I wondered why anyone would put themselves through the heavy workloads of running a company that seemed to have no point in existing. This scenario was reinforced yesterday when I looked at the latest half yearly figures for Macquarie Telecom Group Limited (prompted by a press announcement that they now had deployed 250 DSLAMs round Australia). It made depressing reading in the context that they lose money on revenues approaching $A250 million a year. It seems to me that if you've been in business for well over ten years, have revenues of a quarter billion and haven't increased year on year and are losing money with accumulated losses of $A44 million you should have worked out by now that you made a really bad decision in selecting a business to start up. So, adding Macquarie to the list that includes iiNet (at the higher end) and the penny dreadfuls at the low/tiny end, all you seem to see is that starting up a telecommunications company in Australia only results in costing your shareholders mega millions of dollars and you serve absolutely no purpose in existing if dividends for your shareholders at a rate above savings bank interest is part of your/your shareholder's objectives. The exception to this was, at the time, TPG who had made their main shareholder (interests of David Teoh) somewhere between $A150 million and $A250 million - depending on how the shareholding worked out over time. A great result for David Teoh but a really bad result for the shareholders of SPT who lost their cash in paying for TPG - winners and losers - but no nett wealth increment. Since the 'take over' the SPT shares have lost one third of their value having fallen from mid 40s at the time of the offer to around 30 cents today and it will be interesting to see whether the handsome profit predictions made in the 'merger document' actually come to fruition - I'll take any bet they don't. Their current cash situation after paying so much for TPG may be illustrated by this: http://www.australianit.news.com.au/story/0,24897,23771453-15306,00.html and: http://www.australianit.news.com.au/story/0,24897,23776563-15306,00.html ...sounds like a company that either can't pay its bills or, perhaps worse, a company that doesn't know what bills to pay (one that doesn't know which staff to pay sounds like one very screwed up company). Why would any sensible person/shareholder decide to invest their time and money in this business which has a long track record of consistently destroying shareholder value and almost always results in 'take over' (for the larger companies) and going out of business for the smaller companies? Of course Telstra and Singapore Telecom's share holders get realistic dividends (though their share values aren't that flash at the moment). These companies can't really be taken in to consideration as Telstra was funded for 100 years by Australian taxpayers and Optus was purchased for $A18 billion by Singapore Telecom after racking up billions of dollars of write offs and contributed to the demise of some 'icons' of the Australian company community (anyone remember Cable and Wireless, Mayne Nickless and Ansett Airlines?) who collectively lost their 'shirts' in trying to make Australia's second carrier license make a financial return. There is little doubt that Optus itself would no longer exist if it hadn't made the huge additional investments in building out its mobile network to finally allow the company to reach profitability - some 8 years after the initial prospectus estimates and after writing off some ten times the estimated cost of delivering that result. So, now I look at the almost final version of the Exetel business plan for FY2009 I can't help but wonder why I, and a little later in June the other shareholders of Exetel, should believe that we can continue to make a month on month profit where it has clearly been not possible for almost every other communications company to do so? Perhaps it's simply the 'tyranny' of spreadsheets like Excel whose neat arrays of densely packed figures in columns and rows hide errors of logic and assumption? Only time will tell and hope does spring eternal. Let's hope 2009 is an easier year than 2008.
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Bastards, these are small business people trying to scratch out a meagre living who they are screwing.
I noticed that those stupid "you got to goto have Soul" ads have disappeared recently. Comment (1)
The concept (after you get past the lovey-dovey merger document nonsense) of the austerely run, and in its way quite peculiarly staffed, TPG trying to find out what on Earth was happening in the crazily staffed and run SPT was always going to become a very public nightmare.
Kiss goodbye to the proposed "synergies" (that was pure stupid 'spin')and as for profits? - try a loss in FY2009 (citing "unexpected write offs) and then for as many years as the entity stays in existence. Comments (3)
Popular Media is reporting Soul might be in even more trouble:
http://news.google.com.au/news?hl=en&ie=UTF-8&tab=wn&ncl=1216773523 Comment (1)
Soul "owns" a national MPLS network designed to carry digital video, so one would think that they'd be very capable of running a well-provisioned network.
Yet all their egress is now via TPG's network (and was prior to the completion of the merger). From what I've seen in various news pieces, TPG are also taking over a lot of customer support and data centre operations that Soul used to run in house (possibly because their primary data centers other than Melbourne are full). Makes you wonder why they're doing such things. One of the possibilities is that TPG simply get a better deal from PowerTel for their egress and MPLS backbone than Soul's various suppliers, even though Soul claim to have massive coverage and to run the second-best MPLS network in the country. Just look at the false start on their Naked DSL offering - something's gone wrong there. Comments (3)
Exetel's dealings with Soul showed a company incapable of operating at even minimum acceptable levels of provisioning, billing and fault resolution.
The quality of the services was also highly unsatisfactory. Using up all of their cash and then borrowing heavily to buy TPG would have been an immense strain. Very high probability of 'tears before bedtime'. Comments (3)
We looked at Soul for a second site (in their Melbourne data centre). For what we wanted (admittedly very specific and constrained) they turned things around quickly on our questions and requirements.
That said though, they couldn't give us our one requirement - 32A power. It seems none of the telcos can get even close to that in their data centres. How Exetel runs that high-density PeerApp gear at 55 Clarence Street is beyond me, as AAPT/PowerTel won't give me racks with more than 2.4 kW each in that facility. Comments (3)
I don't deal at that level of detail in thatpartof the usiness so I have no knowledge.
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