John Linton I had a more detailed look at the Telstra annual resuts last night and they were pretty depressing - but the share price rose and the CEO said what a wonderful year it had been for "attracting new customers". If last year was a "good" year for attracting customers (he reported that revenue had grown a miniscule 0.7% over the twelve month period) I wonder what he would consider to be a "bad" year for customer growth? As that "good year for customer growth" was achieved at a net decrease in profit of $700 million one can only wonder what it will cost to achieve any planned "customer growth" over the coming year?...he is suggesting that growth in the coming year will be in "low single digits". Exetel had a poor year in FY2011 but we didn't make less profit than the year before and our revenue grew by around 12% - we considered that a very poor result but given the overall toughness of the year (mainly caused by Telstra's actions) we were happy enough with both the revenue and profit results.....we had no real expectations of growth when we did the initial planning for 2011 and if anything we were pleasantly 'surprised' by the end result. Of course there are other views:
http://www.smh.com.au/business/telstras-share-price-bounce-a-sweet-response-to-thodeys-imprecise-call-20110811-1ios3.html
The results for other telecommunications companies will become available over the next ten days and they will be interesting to compare with Telstra's. Optus also announced their year end results yesterday and followed Telstra's lead and simply made statements that the facts contradict and then talked mainly about how mobile business continues to grow at rates that defy logic (and the population of Australia). Neither company gave figures as to how Vodafone's problems contributed to their mobile growth. The ABS statistics are still three or so weeks away which should be quite interesting to see how wireless broadband has grown compared to ADSL over the past six months. The only larger company that won't announce results before the end of the month will be TPG that has a different reporting date because of its reverse takeover of Soul. The ADSL market will not have grown at all over the past six months in terms of number of users and it will have shrunk quite noticeably in terms of revenue. It will be an interesting two weeks trying to geta better understanding of what is REALLY happening in the Australian communications industry.
Market share? More important, in the event that it's ever important at all, in a new, growing market than it ever is in a falling/saturated market. However it seems to be more important than ever for many Australian communications providers - based on their own statements. As Telstra's revenue and profit figures so indelibly demonstrate attempting to grow market share in a falling or stagnant market is only possible by sacrificing both profit and revenue - and you have to be pretty sure that is what you want to do and that by doing so there is some collateral benefit. The kindergarten understanding that larger market share equals economy of scale resulting in larger profits because of lower unit costs does not apply to saturated markets that are beginning to fall.....the reverse begins to apply (because the infrastructures that have been built to service 'n' customers becomes an INCREASING cost when 'n' becomes 'n-x' and x is a month on month increasing number). If the only way of maintaining 'n' customers is to reduce 'y' (ARPU) then it turns out to be a very nasty 'financial bear pit' - as again, the Telstra profit and revenue figures for 2011 so clearly demonstrate.
Maintaining "market share" in a stagnant/falling market is ALWAYS accompanied by lower end user pricing which is achieved by cutting infrastructure and operating costs. It's hard to 'give back' infrastructure that has been paid for (and thus remains on the depreciation list in the 'books') but it is possible to reduce those parts of the infrastructure that are 'rented' - but that is also not possible without increasing 'unit costs' in most instances. Similarly it is possible to reduce personnel involved in providing the support/sales/etc involved in those services but that is equally expensive and seldom results in what the "HR/Top Management" expect to achieve (because they rarely have the slightest clue as to who of those people are actually the best to keep and who could be 'let go' with the least impact). So falling/stagnant market places are very dangerous for those participants who are obsessed by market share......which will make this particular reporting 'season' more interesting than most.
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