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Telecommunications Telstra result confirms warnings
Telecommunications Telstra result confirms warnings | Telstra result confirms warnings |
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| by Stuart Corner | |
| Friday, 10 February 2006 | |
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Telstra announced a profit after tax of $2.14 billion for the half year ended 31 December 2005, a decrease of $245 million or 10.3 percent on the prior half year. Earnings before interest and tax (EBIT) declined by 7.0 percent or $262 million to $3.5 billion. Telstra CEO, Sol Trujillo, said: "The trends of decelerating revenue growth, PSTN erosion and accelerating costs so evident in the second half of fiscal 2005 have continued, producing an earnings decline in line with our negative guidance." Total income (excluding finance income) grew by 1.9 percent or $218 million to $11.6 billion due to increases in broadband, mobiles, IP solutions, advertising and directories and pay TV bundling, offset by a decline in revenues from PSTN calling products, specialised data and ISDN products. Trujillo said the PSTN decline had accelerated slightly faster than expected, with PSTN products revenue falling by 7.6 percent or $313 million for the half year, compared with a decline of 3.4 percent for fiscal 2005. Since June 2005, Telstra has lost 180,000 retail lines, of which 80,000 churned to wholesale. "PSTN revenue is declining at such a rate that the revenue growth engines of broadband, Sensis and wireless are barely compensating yet, given their relatively smaller bases, he said. Ovum senior analyst, David Kennedy, commented: "The next few quarters will exhibit the new strategy's costs long before the real benefits appear. The exit costs from old networks, and the costs of provisioning new capacity in the new networks, will be significant. And in a highly competitive market, it's very possible we'll see a lot of flattish sales growth. This may add up to some short-term deterioration in Telstra's financials, but if Telstra is true to recent form, it won't allow that to come as a surprise. It will stay the course because the strategy they've adopted is the same, sound strategy that every other incumbent carrier has adopted: exploit your unique economies of scale and scope to build new revenues, while fighting a rearguard action in legacy markets and on regulation. Worries will reappear if sales and market share growth don't return, but that won't be apparent for few more quarters. Sol will need to keep selling the sizzle until the steak appears." Kennedy flagged regulation as "the biggest uncertainty" facing Telstra, in particular it's highly publicised bid to secure regulatory relief from its proposed fibre to the node networks. "The next year is shaping up as a high-risk game of chicken. The Government wants new investment in next-generation networks, but doesn't want to sacrifice the competitive framework. Telstra also wants the investment to boost its capability, but doesn't want to surrender its advantages of scale and scope to its competitors through a regulated access regime. Someone is going to lose unless a compromise can be reached. And so far, no-one is offering any ideas." However another not-insignificant uncertainty is any hiccup in Telstra's ambitious bid to unify its disparate operational support and business support systems and technology platforms. In its strategic review last November it stressed that much rested on its ability to streamline its processes. Any delay in a key project could have a ripple though impact on many aspects of Telstra business.
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