Monday, October 13. 2008The Communications Industry Faces Interesting TimesJohn Linton One thing that I have always liked about the technology industries that I have been involved with for the whole of my working life is that they constantly change both in terms of the companies that operate and the technologies that are deployed. The current falls of all types of stock prices around the world over the past year has been the subject of 'blanket' media coverage for several months now and is now part of the 'world wide financial crisis' so the continuing loss of value of communications company share prices is of miniscule importance to the wider world of 'real people. You may remember that I said that this URL: http://markets.smh.com.au/apps/mkt/industrylisting.ac?code=50 gives a 'snap shot' of the communications companies listed on the ASX - and what a sad and sorry story it tells at the moment with even Hutchisons (with their $A3 billion mobile network) falling to 'penny dreadful' status of 9 cents valuing its whole ten year plus investments in Australia at less than $A80 million. Similarly TPG's shares fell perilously close to 'penny dreadful' territory at Friday's close of 10.5 cents valuing TPG/SPT at a little over $A75 million - and this is a company that unequivocally states that it will make over $A90 million in profit in this financial year. Same story with Macquarie Telecoms (annual revenue of over $A200 million but a market valuation of less than $A20 million) People Telecom with annual revenue of $A100 million but a market valuation barely above $A7 million and so on. Even Telstra and Optus have dropped 10 - 15% over the past few months. None of this means very much in the long run - undoubtedly the worthwhile companies will regain favour with the share buyers and their stock prices will reflect that change in confidence. But it does mean a great deal in the short to medium term with the $A falling precipitously to levels not seen for more than 3 years and with all the pain for the comms industry such falls bring. I made the pessimistic forecast some 10 months ago that if the "NBN" tender ever was awarded it would be lucky if the first spade hit the dirt before 2010 and that 'pessimism' (according to Stupid Stephen at the time) looks like wild optimism right now. Not only that huge financial infrastructure investment is now under threat of much more expensive costs from the $A slide but, as everyone is now saying, just FINDING investment money (let alone at a realistic price) is going to prove difficult. This was rammed home to me in no uncertain terms over the weekend when I received two new quotes for Huawei E169 HSPA 'sticks. The first one was from the UK supplier whom I talked with in London in early August who sent me an upbeat email reducing the price he was prepared to let Exetel have them at; which was a nice reduction. However since I last talked to him the $A has fallen so much his quite large reduction actually turned into a price increase. The same effect from a quote direct from the PRC which we could have considered because the initial shipment quantity was less - two month ago it would have been a significant saving to us but now it's not much below our current Optus price. So the "global credit crisis that isn't affecting Australia" is affecting Exetel and, doubtless, any other comms company, large or small, that buys goods denominated in $US - which includes all the mobile handsets as an example of how end users will be affected. Of course forward buying of currency will mitigate the affect for a while but the pricing will be affected sooner rather than later. Even the upgrading of the various carrier's ADSL2 DSLAMs will now cost more than was budgeted for (less any forward currency cover) and new exchanges will cost far more than they would have 3 months ago. So, not much joy if you're thinking of buying a few thousand HSPA modems (or ADSL1 or ADSL2 modems for that matter) and definitely not good news if you're importing HSPA/3G equipment to roll out/expand your 3G networks round Australia - all of that just became a lot more expensive. But in reality - nothing that has so far happened has actually affected many/any Australian buyers of products and services except in a positive sense that petrol is much cheaper and house prices have fallen which is good news for house buyers if not for house sellers. However it will have an effect and the UK, which is 2 - 3 months 'in advance' of Australia in dealing with the global financial crisis which isn't meant to affect us indicates what we will soon face: http://business.timesonline.co.uk/tol/business/economics/article4926946.ece This article, and those around it, also likens the likely current 'recession' to be as harsh as the 1982 years rather than the , relatively, milder 1992 - 1995 and Dotcom problem times of 2000/2001 - very worrying if they are right. Apart from hardware costs I get the first uneasy feelings about how Ms McKenzie and co will deal with the current 'slow times' being felt by the various 'suppliers' to the wholesale comms market. In recent weeks I have met with several of our suppliers all of whom say or imply the same thing - that their first quarter was 'disappointing' and the current quarter looks even more disappointing. One supplier said they had missed their targets by double digits and another said that apart from Exetel all their other wholesale customers were spending less with them than in the previous quarters. I felt really good for a nanosecond until I realised that it probably meant that I was too foolish to have negotiated as good pricing as their other customers. If times are 'slow' right now, it almost certainly means they will get slower over the next few months. On Friday afternoon TW met with two of Exetel's personnel to discuss various issues and the impression we got was that TW had failed to generate much interest in selling ADSL2 to their wholesale customers and was now attempting to find ways of being more 'persuasive' in the only way that Telstra knows how to be persuasive. I read the brief reports from the two Exetel people over the weekend and it gave me a bit of a jolt - not that TW had put anything in writing and because both Exetel people said what was presented was very confusing I didn't have any facts but the metaphorical 'hair on the back of my neck' definitely 'bristled' with foreboding. I didn't know what if anything to make of the implications. As far as I can tell the current ADSL1 business is growing strongly and it has been a 'no worry' part of the Exetel business for some time now. However I now believe (based on nothing but a frisson of - it would be dramatic to use the word 'fear' - but something more than unease) that the various actions we had planned for mid to late 2009 need to be brought forward and brought forward to late 2008 if that proves to be possible. It seems to be wise to make more effort to convince our ADSL1 customers to consider an alternative to their current broadband service much sooner than I had anticipated. Oh well - sadly - I wouldn't know what to do with a quiet week anyway. Trackbacks
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Interesting times indeed. As you said in a previous post, it seems to be good to be a provider of budget services in tough times.
The one thing that puzzles me about all this financial drama is why the Auzzie dollar is falling relative to the US dollar - after all isn't the US dollar that's meant to be getting weaker in all this, not ours? I thought we'd end up stronger not weaker. I reckon if you can get the USB sticks down you'll get more bites as the $5 a month contrasts harshly with the $195 hardware; but understand why you can't do that yet. Certainly in my experience as an agent, the drops in ADSL activation have always been met with a rush in applications. Keep up the good work, John & Co (Written in an Armidale KFC using the Huawei 169.) Comment (1)
I think when the AUD was up in the high nineties there was a perception in the market that our dollar was strong, I think it was more realistic to say that the USD was slipping and we just looked better on paper at the time, it was only a matter of time until we declined again.
The USD has long been the favored trading currency in Asia, over the last few months more and more Asian suppliers are starting to quote in Euros stating that the USD is no longer stable enough for them to hold a quote for any length of time, some are wanting earlier payments due to the instability for fear of losing money due to fluctuations occurring before orders can be completed. It's not an easy market to deal in right now that's for sure Comment (1)
John ,
the statement below worries me that Exetel may not be able to supply ADSL1 in the comming year. < It seems to be wise to make more effort to convince our ADSL1 customers to consider an alternative to their current broadband service much sooner than I had anticipated.> -- I would gladly swap over to ADSL2 but its just not offered in our area by anyone else but Telstra. Your not going to feed your loyal ADSL1 customers to the Telstra shark at some time in the near future - are you. Comment (1)
Of course not.
My concern is that Telstra may use their usual bullying tactics to raise ADSL1 prices. Telstra = Scum to me and always has. I hope an HSPA , future solution, will allow us to get rid of Telstra over the coming years. Comments (2)
Exetel has no plans not to provide ADSL1 services but I have to now consider what Telstra Wholesale may be considering doing to "persuade" small ISPs like Exetel to move their ADSL1 customers to Telstra ADSL2.
I have absolutely no knowledge that TW will attempt to do such a thing but it now seems to be a possibility - and its always sensible to take 'possibilities' in to consideration when there is an ability to do that. Comments (2)
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