John Linton It depends on whose view you take of various aspects of the Australian communications industry as to what you think is has happened over the past year or so, what is happening now and what is going to happen. Telstra's executive remuneration committee obviously has a more optimistic view of the performance of its senior management than any shareholder could possibly have - given that under the direction of Telstra's senior management the company made less money tin the year just completed than it did in the year prior and its forecasting to do worse in the current year:
http://www.smh.com.au/business/telstra-cuts-executive-bonuses-20100816-1272e.html
They managed to pay 23% of the planned bonuses even to executives who presided over sections of the business where both revenue and profit declined. An amazing view of business life - considering the Telstra senior executive "team" managed to deliver a decline in share price to its lowest point ever and, according to one of the statements in the cited article, the backbone of the executive bonus scheme was share price growth. On the actual financial results and the effect on share price I would have assumed that the remuneration committee would have been putting in place debt collectors to retrieve the money they had already paid to the Telstra senior executive "team" based on woeful failure to perform their responsibilities adequately and then recommending to the full board the need for immediate replacements.
If you've paid any sort of attention to the various price changes that are going on in the Australian market you would have seen that many suppliers of internet services are changing their prices - mainly downwards but at least two are changing some prices upwards. This is unsurprising and is all part of the pricing blood bath that was obviously going to happen over the last year and will continue to happen over the coming year. No surprises there then....except maybe there are one or two beginning to appear. There is NO doubt that Telstra's ongoing need to stop losing customers has finally begun to break down their retail operations attitudes to pricing and the recent reductions will continue either in actual price reductions or ever larger 'sign on bonuses' and 'special marketing programs'.But there are some signs this going to prove more difficult if there is no 'NBN2' revenue:
http://www.smh.com.au/business/telstras-dividend-under-siege-20100816-1266j.html
How far this has yet to run is impossible for me to try to predict but perhaps you should see that if, say, Optus/iinet/TPG can sell at the prices they do and increase their reported profits then clearly the newly re-focussed Telstra retail could do the same. Should Telstra retail carry out whatever dramatic programs they have foreshadowed in their annual results statements you would have to think its going to take more than a few more bus sides and annoyingly intrusive web placements to counter the $A2 billion in incentives Telstra seems to be prepared to sacrifice over the coming two years to 'win back' lost customers. If Telstra is aiming to win back a 10% market share (probably the lowest they would aim for) simple arithmetic tells you that all of the other ISPs will lose 20% of their current market share as Telstra has around 50% of the ADSL market and they would rationalise that it was only 2 -3 years ago that they had a 60% share so it shouldn't be too difficult given the amount of money they are apparently prepared to lose to restore their declining fortunes.
Given the dismal performance of Telstra's senior executive "team" over the past year (and presumably previously) though, this objective may not be as easy as throwing truck loads of money at 'promotional programs'. However if early attempts fail to produce the planned results presumably even more money/price cuts will be 'thrown at the problem'. So, assuming that Telstra is aiming at some sort of customer recovery program around the 10% mark it makes you wonder what will happen to the overall market place while this plan plays out. Could iinet or TPG cope with some significant loss to their current customer base? Clearly the 'smart' investors had reservations - they wiped off around 8% of their respective share prices when Telstra announced its plan to recover market share and that was based on a simple statement. What will happen if Telstra manages to turn that statement of intent in to a reality?
A really rough year is going to happen.
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