Global Insight Perspective | |
Significance | For the fiscal year ending 30 June 2007, Telstra reported a 3.9% growth in its total revenue, while underlying earnings before interest and tax rose by 7.1% from the previous year. |
Implications | Although revenues from traditional fixed-line business continue to decline, lower labour costs, as well as growth in the mobile phone and broadband internet businesses, have helped to lift earnings. |
Outlook | Looking ahead, Telstra's growth prospects are overshadowed by uncertainty related to regulatory and government telecoms policy, which could lead to favourable competitive conditions for its rivals. |
Telstra said its total revenue for the fiscal year ending 30 June 2007 grew by 3.9% year-on-year (y/y) to A$24.0 billion (US$20.7 billion), mainly through increases in mobile phone and broadband-internet businesses, but growth was partially offset by a 4.1% decline in revenue from its fixed-line call services to US$7.2 billion. Underlying earnings before interest and tax (EBIT) increased 7.1% y/y to A$5.8 billion, while EBIT—which includes a one-off A$110 million write-off related to its Trading Post classifieds business—was up 5.1% y/y. Profit after tax was A$3.3 billion, up 2.9% from the previous year. Capital expenditure (capex) increased 39.0% to A$6.0 billion as the company spent on upgrading its infrastructure including the roll-out of new mobile networks. For the fiscal year ending 30 June 2008, Telstra gave cautious guidance, citing continued uncertainty over regulatory and government communication policy. The company expects its revenue to increase by 2-3% in fiscal 2008 and has forecast EBIT growth of 3-5%, with growth of EBITDA (earnings before interest, tax, depreciation and amortisation) at 2-3%. Operating capex is seen at between A$4.6-4.9 billion for the fiscal year.
Outlook and Implications
- Five-Year Transformation Plan: Telstra's full-year results come as the company is 19 months into a five-year transformation programme, designed to reduce the company's dependency on a traditional fixed-line call service. In the year ending 30 June 2006, Telstra's net profit fell by 26% to A$3.18 billion, due to costs related to the transformation programme. "With the transformation remaining on or ahead of plan on virtually all fronts, and the peak transformation spend year now behind us, we expect to continue improving financial and operational performance in fiscal 2008 and beyond," said Telstra's chief executive, Solomon Trujillo. The company said the programme, which started in late 2005, has begun to help business by reducing labour costs, with the workforce down by 5,746 within the last two years.
- Mobile and Broadband Growth: Telstra has also seen growth in its mobile and broadband businesses. In the year ending 30 June 2007, the company’s total mobile revenue grew 13.9% y/y to A$5.7 billion, reflecting continued customer growth and higher ARPU. The company said its Next G network, a mobile network based on HSDPA technology launched in October last year, along with wireless applications and content and service integration, is delivering a powerful competitive advantage to Telstra and changing the game in customer behaviour. Telstra is now winning about 60% of industry 3G net additions, up from around 30% before the Next G network was launched. Telstra's 3G customers have now exceeded two million, with customers on Next G topping one million. 3G customers have surged to 22% of the company's mobile subscriber base, compared to the 4% level a year earlier. This has enabled Telstra to overtake Hutchison Australia as the 3G leader in terms of subscriber numbers. The company has also pointed out that 3G customers use their phones differently, with more voice, SMS and data usage. The company said the same customer is typically providing a sustained 5-10% ARPU uplift after moving from 2G to 3G. The ARPU premium of post-paid 3G customers over their 2G counterparts remained above A$20. In the broadband segment, retail broadband revenue for the year jumped 66% to A$1.2 billion, with the company outpacing its competitors, adding 900,000 new broadband subscribers during the year to a total of 2.4 million. The company gained a further 2% of market share in the second half of fiscal 2007, reaching 47% in a highly competitive market. Telstra has also unveiled a fully-integrated national IP network—the Telstra Next IP network—which, coupled with the Next G wireless network, will enable delivery of a seamless user experience across multiple devices and platforms in the future (see Australia: 26 April 2007: Telstra Unveils US$1.25-bil. National IP Network).
- Regulatory Uncertainty: Looking head, Telstra's growth prospects are overshadowed by uncertainty related to regulatory and government telecoms policy, which could lead to favourable competitive conditions for its rivals. The country's largest telecoms group has been in constant dispute with the industry watchdog—the Australian Competition and Consumer Commission (ACCC)—over various issues. Telstra has objected to a ruling by the ACCC on the level of prices it can charge competitors for access to its fixed-line infrastructure. Trujillo said "our competitors get extreme help and assistance from the regulator," adding the latest year's results had been achieved despite competitors—including Australia's second-largest telecoms operator, SingTel-owned Optus—getting access to Telstra's networks at very low prices. Telstra has also put on hold a plan to roll out a fibre-to-the-node (FTTN) broadband network that it had hoped would replace its copper network in metropolitan areas, as it is yet to agree with the competition regulator what to charge competitors wanting to access the new network. Telstra is now facing the competition from a consortium led by Optus—the "G9" group—which is also vying to build a high-speed fibre-optic network. The government has announced plan to set up an expert panel to assess competing proposals from the two parties. Furthermore, Telstra has last week commenced proceedings in the Federal Court against Communications Minister Helen Coonan, challenging the government's decision to award almost A$1 billion in funding to rival SingTel-owned Optus for broadband network roll-out in rural Australia (see Australia: 3 August 2007: Telstra Launches Legal Action against Government Regional Broadband Connect Funding and Australia: 18 June 2007: Australian Government Awards US$800-mil. Funding for Rural Broadband Roll-Out).