John 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?