John Linton I am assuming you read one of the many reports about Telstra's half year results or saw one of the 'news for the under fives' "reports" on television news programs. If not the a trip to the ASX web site and entering Telstra's code (TLS) will give you access to the three page document (alternately an early report can be found in the PS of yesterdays blog). I am not a Telstra shareholder so I don't know what impact the report would have on me if I were. What the Telstra CEO chose to say was that "Telstra has added more 'new' customers in the last six months of 2010 that at any six month in its history and that, despite a massive fall (36%) in the half years profit the half year dividend would be maintained at 14 cents per share. He went on to say that the fall in profit was caused by his previously announced huge expenditure on 'winning back' the huge number of customers but that was a one off expenditure that would produce ongoing benefits in future years.
Fair enough - sounds good to the dumber of his company's share holders - no gain without pain - good future strategic thinking - well done you for a plan well executed. Get off the stage and into the coffee and biscuits before any awkward questions can be asked by anyone with basic numeracy........
......like..... "if what you just said was a true picture of what you have achieved.....why did the top line revenue decline when you have added 1,000,000 new customers?"......
......surely 1,000,000 extra customers must have increased the revenue? If you spent 750 million dollars, or whatever, on gaining these customers why did the revenue go DOWN by such a significant figure? Surely the drop in revenue means that the total customer base now pays less to Telstra for services than they did six months ago which means, unless you have also put in place massive new efficiency/redundancy programs over the past six months (which you have made no mention of in your announcement) what you have really done is to spend 750,000,000 dollars and destroyed your ARPU??? In other words, because you are charging less for services so that you could 'win back' 1,000,000 'new' customers (you had to cut the prices to your 'old customers) you are now getting less revenue than you did but your costs have actually increased (ignoring the one off marketing expense)?
A subsidiary question might be - "did you really have to spend $750 to win back each customer?" Surely that must be the most expensive re-acquisition program in the history of Australian commerce? No wonder Thodey could say it was a record in Telstra's history - it reeks of panic and incompetence and a huge waste of money.
My simplistic understanding of business is that if you get more customers but your gross revenue goes down (ignore the profit decrease caused by 'one off' additional 'marketing expense) you actually will continue to make less money (profit) than you did previously. Surely 1,000,000 additional customers MUST have increased revenue? It's all well beyond my simple minded understanding of business practices.
Talking of which (poor understanding of simple business practices) how does any competent CEO/Board not notice that they had 60 too many "middle and senior management" in their head office:
http://www.zdnet.com.au/iinet-culls-head-office-staff-339309090.htm
I don't know how many "middle and senior managers" it takes to run a company of iinet's size but while i could understand that you wouldn't notice when you had 2 or 3 too many managers - but 60?? How do you miss the fact that you have SIXTY more middle and senior managers tan you need? If you take the likely average cost of such people (salary, floor space, benefits and other costs) you would have to assume that the yearly outlays would be of the order of $100,000 per person which is an annual total cost of something like $A6 million a year....and you didn't notice that you were actually not getting any value from this expenditure and could do without it in one fell swoop? Is this just getting rid of the Westnet managers they inherited? For a company that continually says how well it's doing this is a 'fact' that's very hard to understand.
If the CEO/Board of a company didn't notice that they were 60 people too many in their head office you really have to wonder just how many people too many they have in other locations in their operations that don't fall into their immediate vision each day? Which also makes you wonder how much you have to over charge your customers to support such incredibly stupid hiring and day to day management policies. In normal commercial areas this would be a signal of a company ripe for takeover and the installation of competent management....but then so much occurs in the communications industry today that is simply beyond my comprehension that it is one more reminder that I should stop trying to understand anything. I wonder what they are going to do with all that empty floor space that is probably contracted for years to come?
It will be interesting to see what the analysts have to say about Telstra's announcements when they get around to looking at the detail.
Copyright © Exetel Pty Ltd 2011
ABN 350 979 865 46