John Linton
I have been looking forward to today's half year results from Telstra ever since the comments by their CEO back in December that growth would be 'flattish' - I was interested to see what 'flattish' was going to mean in Telstra terms. The comment was surprising because it isn't often that a company as competent as Telstra has always showed itself to be in planning its revenues (and profits) makes such a radical, and very public, downgrade forecast only months after it has published the original forecast. (it was the main reason that 'spooked' me to make more significant changes to Exetel's prices than perhaps I should have). Anyway today's publication of some detail of what Telstra achieved over the last six months of 2009 will be an interesting read.
The Optus results, published earlier this week:
http://www.asx.com.au/asx/statistics/announcements.do?by=issuerId&issuerId=4704&timeframe=D&period=W
show strong mobile growth (10%) but only an overall revenue growth of 5% which means everything else actually declined and as Optus is nowhere near as exposed to wire line rental and call charges as Telstra as the overall Optus results seem to indicate that Telstra will report similar product by product results. One thing that surprised me in the Optus results was their wholesale which declined by 2% in the six month period largely due to a 4% decline in wholesale IP and Data services - a very significant fall though the overall profit margin of 24% seems very healthy. Our purchases from Optus in that period increased a fair bit and although our purchase prices declined our total spend increased each month - in fact I was surprised, if I'm actually reading the figures correctly, to see what percentage of Optus wholesale business Exetel is. I noticed that Optus made no mention of ADSL progress specifically, either retail or wholesale. The results do emphasise wireless broadband growth but don't break out specific numbers.
After Telstra publish their half year results today the ABS half year figures won't be far behind and the three reports will provide a reasonable view of the overall state of the ADSL residential market places. From what can be seen it seems unlikely that the view will be particularly positive and, if that proves to be the case, it will be even more interesting to see what then happens to 'packaging' and pricing of ADSL services to residential users both by the two big carriers and then the next level down (TPG, iinet) where single service (ADSL2) growth is a key component of their financial well being. It will also be interesting to see what those sort of companies state for their growth predictions for the final six months of this financial year. (I wonder if iinet's figures don't match their forecasts they will excuse that on legal distractions?).
I imagine there are far more people than me looking to the current reporting period to determine what their product and pricing strategies might need to be in the remainder of this financial year. One of the big issues for more than just the two big carriers is the ongoing and quickening decline of wire line rental and call revenues.....which is irreversible and while mobile revenues keep increasing and therefore cushioning the overall top and bottom line effect there is going to be some point where it will almost certainly have severe ramifications on the pricing and support of ADSL in various areas. As more people decide they don't need a wire line (irrespective of how the call charges are minimised) the cost of supporting any 'district' has to increase as less base line revenue is available as Telstra's statement emphasizes:
"Fixed line revenue dropped by 6.9 per cent in the first half to $2.997 billion, a sharper fall than the 4.8 per cent decline in the second half of the 2008-09 financial year."
So, even more important than the three reports I have alluded to, is the joint Krudd/Telstra announcement (today?) of how the current copper connections between residences and exchanges are to be owned, provisioned and maintained in the phantasmagorical new 'NBN2' world and how that infrastructure is to be paid for, by when and by whom. That will certainly be an interesting 'read'.
Life may continue to be harder than it should be but it's never dull or uninteresting.
PS: As foreshadowed - Telstra's revenue and profit both fell for the last six months of 2009:
http://www.asx.com.au/asx/statistics/announcements.do?by=issuerId&issuerId=3826&timeframe=D&period=W
Slide 29 shows the 1.9% decline in total residential ADSL customers using BigPond