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rog

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Everything posted by rog

  1. If you look at the details of the “widespread failingsâ€ÂÂÂÂÂ, over 20% of loans had been repaid/refinanced, 1% was over 30 days due and 0.25% greater than 90 days past due. Hardly justifies the reaction.
  2. Its an uneven contest; the chinese think in the very long term whereas Trump's focus is limited to a very small space in time. I'm sure that if Trump was any real threat he would have been taken out long before now.
  3. While these pundits throw up some interesting views they are essentially selling their product - if they were so sure of themselves they would short the market.
  4. Some concern being expressed that if franking is restricted SMSFs will turn to REITs and other forms of property investment creating even more demand.
  5. Tax payers will still be able to offset imputation to their taxable income; the only difference will be to remove the Howard/Costello policy of refunding franking credits not used to reduce taxable income.
  6. Apples with oranges; while an individual tax payer can be a member of a super fund their own taxation obligations are not those of the super fund.
  7. Regarding asset recycling, two companies spring immediately to mind - Tepco and Carillion. Taxpayers have reason to be concerned as inevitably they have to pay for the failure of these free market operators.
  8. rog

    SRX

    Yes, I was thinking early days when the sp struggled to get over 50c. Also, a big thumbs up for those that adopt the set and forget philosophy.
  9. rog

    SRX

    A great result for long term holders.
  10. “Schuldschein borrowers do not require a credit rating and the company only needs to prepare a brief document to accompany a deal.†“Market participants say that recent ruptures have not undermined Schuldschein, but have merely shown that it is not suitable for every company†https://www.ft.com/content/ac329fba-fac4-11...92-2c9be7f3120a
  11. I predict that the sp will fall by an amount greater than the dividend - next months' results will be informative.
  12. My local woolies has a mix of checkouts with the automated being popular. Theft is huge with shoppers deliberatly bypassing the bar code reader even under the watchful gaze of staff. Apparently the security alarms are not effective.
  13. I think that Macquarie Banking (MBL) is separate to MQG.
  14. AFR Telstra and Optus lose ground against cheaper mobile providers, with iPhone boost ahead EXCLUSIVE Nov 26 2017 at 11:00 PM Updated Nov 26 2017 at 11:00 PM Telstra and Optus will expect to do better than cheaper rivals when it comes to signing up customers keen to use the new iPhone X. Michael Nagle Telstra and Optus face increased competition for mobile customers from lower cost operators, which resell services on their networks, according to a study showing that more new customers are signing up with alternative providers than the big names. The top telcos will be looking to the the recent release of the iPhone X and the Samsung Note 8 to swing things back in their favour, after Telsyte's Australian Mobile Services Market Study 2017 found that more than 200,000 of 444,000 new services in operation in the first half of 2017 were signed up to Mobile Virtual Network Operators (MVNOs), rather than directly with the largest telcos. Telsyte found the top performing MVNOs in the first half of 2017 where ALDImobile, Amaysim and Kogan Mobile. Worryingly for Telstra, it added fewer new customers than Optus and was on par with Vodafone, with Optus appearing to be reaping some benefits from its mammoth investment in English Premier League football rights. Telsyte senior analyst Alvin Lee said Mobile Network Operators (MNOs) such as Telstra, Optus and Vodafone tended to appeal to customers for different reasons than MVNOs. The former tend to attract customers who want value-added offerings such as bundled services and media content, whereas the latter's customers tend to base their decisions on price. Telsyte analyst Alvin Lee said Optus was seeing the value in its sports rights, but many customers were currently focused mainly on price. He said the majority of customers seemed to be less impressed by the relative technical prowess of 4G networks than they were when they were new, and that this avenue of competition would re-emerge when 5G is operating by 2020. "MVNOs are putting more pressure on carriers particularly in the $30 to $60 range, targeting consumers who are looking for more data at better price points … Generally speaking the network is less of a differentiation now than comparing to when 4G first came out about five years ago, unless we look at specific non-metro areas. Consumers are also more price sensitive in the current economy," Mr Lee said. "Telstra's mobile profits are under pressure and this is being factored into the share price … it is facing a tough fight from here to the commercialisation of 5G." Optus took a big punt on football as a drawcard for new telecommunications customers, paying a hefty $63 million a year for three years to outbid News Corp's Fox Sports and attracting controversy after its restrictive English Premier League (EPL) packages and technical troubles beset its first season. It also unveiled plans in July to invest $1 billion into a widespread upgrade of its regional mobile network. Sports as a retention strategy However, Mr Lee said Telstra had used mobile rights for AFL, NRL and netball as a successful lure for mobile subscribers and Optus appeared to be seeing the benefits in its own sports package. "We have seen strong growth in Optus post-paid mobile segment since they acquired EPL rights, and it seems to be working as a retention strategy," he said. "We believe content is still an important differentiator in the market that is much more price sensitive." Telsyte found that more than half of handsets were on non-contract plans, but despite this, re-contracting of premium priced handsets such as the iPhone X and the Samsung Note 8 were likely to help the MNOs fight back against the MVNOs in the second half of 2017. It estimated that up to 65 per cent of iPhone sales in the second half of 2017 would be via mobile contracts, compared to around 50 per cent in previous iPhone "S" model years. "The majority of MVNOs focus on BYO – SIM only – or prepaid plans. Not everyone can afford to pay the upfront cost of premium handsets and the carriers provide the option to subsidise or repay handsets on more affordable terms," Mr Lee said. "The new iPhones are driving a re-contracting cycle, which is helping carriers maintain customers in an otherwise highly price-competitive market." TLS
  15. rog

    WDC

    https://foragerfunds.com/bristlemouth/animal-spirits-fore/
  16. Huge changes in the fundamentals, as outlined by the Chairman
  17. There are a couple of cards up Telstra’s sleeve; 1 they are the incumbent 2 they are the only fully Australian company
  18. Alan Kohler recently, on telstra
  19. http://www.theaustralian.com.au/business/t...750e84238ce5b8b Penn in race to reinvent Telstra Supratim Adhikari12:00AM September 2, 2017 Telstra shareholders will need to brace themselves for a bumpy ride, with chief executive Andrew Penn facing a tight deadline to reinvent the telco from its current form into a mover and shaker in the technology world. With Telstra’s sacrosanct dividend policy now cut and its plan to bring forward some of the payments it receives from NBN Co shot down, Mr Penn said management would have to make hard decisions to ensure the long-term survival of the company. “We have to have the right balance sheet settings for the ­future, we have to respond to the National Broadband Network and these are the right policy ­settings,†he told The Weekend Australian. “The government’s decision on the NBN sees effectively 30 per cent of our business re­nationalised, and we lose $3 billion annually from that, but our strategy isn’t about just replacing that $3bn. “Our strategy is about making the right investment decision to grow in the future, and how do we manage our business effectively. The extent to which it offsets the $3bn gap over time we will have to see, but we will not invest in the wrong thing just to make up the gap.†For retail investors who bought into Telstra’s promise as a communications monopoly when it was floated to the market, it is further proof that the cuts to the dividend and a depressed share price look set to be the new normal. Adding to that anxiety for retail shareholders is the mystery of what sort of a business Telstra is hoping to become if it no longer sees itself as a telco. According to Mr Penn, it is not about becoming a technology company in the traditional sense. “We are not suggesting we are going to become Google,†he said. “The point is that technology innovation is growing quickly and all of it needs connectivity, from autonomous driving and drones to the Internet of Things. “So what’s important for us is that we have the best networks in Australia, and in addition to that we are strengthening our capabilities at the applications and services layer to make sure that the people using them have the best experience on Telstra’s network.†However, building those capabilities doesn’t come cheap. So far Telstra has spent $750 million since last November on its network out of the $3bn allocated until 2019, and the intensity is likely to get stronger still. Telstra may not be able to recast itself in the same mould as an Amazon, Microsoft or Google, but it will need to keep pouring dollars into making sure it’s the best player in the game when it comes to connecting their services to its customers. However, Shaw and Partners analyst David Spotswood warned that Mr Penn and his team did not have a lot of time to get the desired results, especially as the NBN and the likes of TPG Telecom rip into Telstra’s margins in fixed and mobile markets respectively. “Telstra’s margins currently run at 8 per cent for fixed-line broadband, and if NBN Co’s revenue projections are correct then that shrinks dramatically. Meanwhile, mobile prices in Australia are already very expensive and they are going to go down,†Mr Spotswood said. “TPG charges $2 a gigabyte on its BYO service while Telstra charges $20 a gigabyte. You take the handset out of the picture and Telstra still charges $12 a gigabyte.†According to Mr Spotswood, sustaining that sort of margin on mobiles is going to be difficult for Telstra and, while the telco will receive compensation from NBN Co until 2020 for losing its wholesale monopoly, it may not be enough. “They have two years, they will get massive one-off payments from NBN ($3bn in fiscal 2018 and $4bn in fiscal 2019) but once that runs out they are toast, unless they can reinvent themselves. The question for retail shareholders is, do you back Telstra to do it? They will have to redeploy capital and get decent return on that.†Telstra’s track record on that front is patchy at best. Australian mobile advertising start-up Unlockd’s co-founder, Matt Berriman, said Telstra faced a mammoth task in turning its words into action. Unlockd works closely with global telcos through its platform where users can gain discounts by viewing ads after they unlock their smartphone. “They’ve tried being a media company with Telstra Media and Sensis, telco with international expansion into Asia (mirroring ANZ’s strategy), which also failed, then a health technology-focused business, and now they want to be a technology company ... who knows what’s next?†he said. Without the right investment thesis, one that to date has been about yield returns for shareholders and not one geared towards building new revenue streams, Mr Berriman warned that the likes of Facebook, Alibaba and Amazon could make life even more difficult for Telstra. “The global giants aren’t building their own infrastructure and cloud services to not do a direct mobile play against the big telcos at some point,†he said. “A clear example of the disruption is telcos missing the instant messaging wave. SMS was a very high-margin business for telcos and they completely missed the threat that’s wiped out that very profitable revenue stream.†Mr Penn is committed to ensuring there is no repeat of the same under his watch at Telstra. But the medium-term outlook for the telco is not good, with earnings and share price likely to stay depressed for some time.
  20. Worth reading this, Costco might just be selling junk but it's big junk and punters like to feel they are getting bargain http://www.news.com.au/lifestyle/real-life...0c417773e322dc8
  21. http://www.marketwatch.com/story/amazon-is...lers-2017-08-30
  22. Chaos presents opportunities. .............. Telstra: shareholders vs customers Posted on August 21, 2017 by Paul Budde It is worthwhile to analyse what is behind Telstra’s recent announcements that it will both cut its dividend and sell $5bn in future NBN revenue. These announcements drowned out the rather solid earnings for the previous financial year and an interesting program of capital investments in its existing network. While the NBN deals negotiated by Telstra under David Thodey were largely seen as a massive subsidy for the dominant telecoms company, the underlying telecommunications market and industry situation remained very much the same. Telstra, in its core, largely continues to be a utilities company that has seen ongoing declining margins because of fierce competition of a range of its, in general, ‘vanilla’ products. This was again evident when Telstra indicated it will increase its competition – in particular with TPG – meaning that it will offer more price competitive products; and this in turn means lower margins. It will do this through a further investment in its low-cost mobile brand Belong. This utilities based nature of the industry was also reflected in the massive write down of Vocus and the huge slide of TPG’s share price earlier this year should also be viewed in that context. The second rate NBN is also not going to open opportunities for high value new services, so it is basic back to basics for the industry. Putting all of this in context the generous NBN pay-outs to Telstra are also not what they looked like. As I have been saying for the last two decades, the reality is that the underlying structure of the organisation will continue to be focussed on the utilities-based nature of the company. This means that margins will continue to be driven down, and this will need to be compensated for by cost-cutting, rather than by higher value new revenue streams. There is nothing wrong with that in principle, if the company keeps a clear focus on this in every part of its organisation. However in the past we have seen dozens and dozens of new (ad)ventures from Telstra, trying to tap into new products and services with higher margins; but the company has very little to show for those decades of billion dollar investments. It looks as though, under Andy Penn, the company is at least concentrating on its core business. Perhaps not all that sexy, but very effective. If the company would like to move into other areas the only way out would be its structural separation, with independent divisions that are then able to focus on the core business of each of these sections. But to date there has been very little appetite for that. We have highlighted the missed opportunity to do this with their digital media assets (Foxtel, White- and Yellow Pages and its broadband content) also here more reality as Telstra is finally diluting its uneasy investment in Foxtel, from now on simply concentrating on providing the delivery infrastructure for the service. In this light we also have to look at the cutting of dividend and the sale of future revenue. Given the true nature of the company, and in comparison with dividends that are paid out by similar companies, Telstra was positioned as a technology company, of course they still are but much more on a basic infrastructure level rather than on perceived high value opportunities. Weaning shareholders off those generous high dividends will always be painful, but its slashing does reflect the reality. The future sale of NBN revenue is an interesting one, but again it is an admission of the utilities-based nature of the company and the need to keep debt down and create money for capital investment. I am still somewhat worried, as it also looks like a clear sign of weakness that this money needs to be found rather than being generated through the business. If this sale is approved we might see for the first time a more serious entry of superannuation companies as investors in the telecoms infrastructure business. I am a long-term advocate and promoter of their involvement in the telecoms infrastructure market, and if successful this might be a first step, with many more to follow (eg, think privatising the NBN). This also might create more opportunities for the smart city movement, where massive infrastructure investments are needed at local council levels. Perhaps that is wishful thinking at this stage, but I see a glimpse of hope for the future of telecoms infrastructure investments.
  23. Via the market shareholders have voted on Telstra management. http://www.afr.com/brand/rear-window/is-te...20170820-gy0apg Is Telstra's Andy Penn a man without a plan? Rear Window Aug 20 2017 at 8:38 PM Updated Aug 20 2017 at 9:21 PM Jesse Marlow It is hard to know what was most daft about Telstra's full-year result on Thursday: that it has taken this long for chief executive Andy Penn to acknowledge the iceberg his company is bearing down upon, or that the market recoiled with such ferocity. It had been so blindingly obvious that Telstra could not maintain its 31¢ dividend that even we said so! Chairman John Mullen even softened up investors for the move in a Sky News interview on July 18. The magnitude of the cut, to 22¢, might have been some surprise (the board deserve credit for not pussyfooting around), but only four weeks ago Citi's David Kaynes was (loudly) pushing for 17¢. We're sure he'll get his wish soon enough. But JPMorgan (with a $5 price target), Goldman Sachs and even those geniuses at Contango ("a contrarian idea is brewing" warned Rob Rankin's last musketeer Charlie Aitken) spent the days before arguing that either there would be "no dividend cut" or that there would but its reduction had been "priced in". The stock dutifully walked up to $4.33 at Wednesday's close, from $4.07 a fortnight earlier. It closed Thursday, post-announcement, at $3.87, down 10.6 per cent. And just watch the share price after August 30, once 1.2 million retail shareholders can dump stock but still keep the full 31¢ on it. Arguments over the wisdom or otherwise of Telstra's capital management policy tend to miss the point entirely. Business Insider's editor-in-chief Paul Colgan editorialised breathlessly for the telco's decision "to hold on to some profit to invest in the development of the company, rather than showering it on shareholders" and cited Amazon as "an obvious comparison here for how it can be done differently" But for every dollar of capital expenditure Amazon reinvested into the business over the past five years, it extracted an earnings return of more than 40¢. For every dollar Telstra reinvested, it got nothing – and arguably less than nothing. Telstra's cumulative capital expenditure since 2008-09 was a whopping $43.8 billion. Yet its earnings in FY09 were $10.6 billion, just as its earnings reported on Thursday for FY17 were $10.6 billion. Adjusted for inflation over that period, earnings have fallen. Yes, Telstra – mostly under chairman Catherine Livingstone and previous CEO David Thodey (both of whom timed their exits superbly!) – spent $43.8 billion just to stand still. So Telstra isn't cutting the dividend to "invest in the development of the company", it is doing so just to keep the lights on. And herein lies the problem: beyond incrementalism, what is Penn's actual plan? "I'm not suggesting we are going to be the next Netflix or Facebook or Amazon [but] we are shifting from being just a pure telco to something else." What is that even supposed to mean? Half-pregnant or half-dead? So Penn has loosened News Corp's grip on its media future through the dilute-and-dump of a merged Foxtel and Fox Sports. But then what? Management has no credible strategy to replace fat, fixed-line profits lost to NBN Co (compensation for which will rapidly exhaust), a step-change it has had more than six years to plan for. None of its sexy new business streams are amounting to anything (Telstra Health is a total dud). So it initiates deep cost cuts to maintain short-term mobile margins at the very time it needs to recover its network advantage. Oh, and a fourth mobile network (courtesy of David Teoh's TPG) is coming. We possess not inconsiderable reserves of sympathy for the inheritance Penn unwrapped, but that was two years ago. What remains unclear is whether Penn and his strategists are lousy at framing and proselytising their Grand Plan, or whether they really just don't have one.
  24. https://www.itnews.com.au/feature/tracing-t...3#disqus_thread Tracing Telstra's future Ry Crozier Telstra is already reinventing itself with a budget running into the billions, but faces a new series of threats that could undermine its future growth prospects. As it moves further into an NBN world, the telco faces increased pressure to maintain market share and margin it has traditionally dominated by owning and operating the local fixed-line network. It – like others – is likely to compete with high speed and quota-heavy mobile plans that – for many internet users – could prove an attractive alternative to a fixed-line service. But the government is unlikely to take that kind of competition to the NBN lying down, and as such there is growing regulatory uncertainty over how mobile will be treated in future as an NBN competitor. Telstra faces a range of other challenges: to its brand attributes, to its breadth of products, the loyalty of its subscriber base, and to its ability to decide who does and does not have a right to use its mobile network. iTnews analyses the threats and opportunities that are shaping Telstra’s future. Losing the USO If the Productivity Commission has its way – and some sway – with the government, the universal service obligation (USO) in its current form could be axed. Responsibility for delivering minimum standard voice and data services would fall mostly on NBN Co and mobile operators, and government would take responsibility for funding services to the most remote places. The USO is currently a contractual responsibility for Telstra that requires it to make “standard telephone services and payphones accessible to all people in Australia on an equitable basis, wherever they reside or carry on business". Axing it would relieve Telstra of its USO responsibilities and costs, but also the $297 million it gets a year and is contracted to get until 2032, which is drawn from an industry levy. Unwinding that contract could incur penalties on the government’s part. Throughout the review process, Telstra has indicated it is “open to a change to USO arrangementsâ€ÂÂÂÂÂ, as long as “acceptable terms [are] reached between Telstra and the governmentâ€ÂÂÂÂÂ. Telstra has done relatively well in renegotiations with the government around the NBN, and industry observers believe the long-term USO contract leaves Telstra well-placed to renegotiate it. “Telstra’s in a very strong position,†Professor Reg Coutts, who is principal of Coutts Communications, said. “It’s intrinsic of the political and commercial power that they have.†“They’re very happy to renegotiate so long as they don’t go backwards,†telecommunications economist John de Ridder said. “I think they feel they’ve got a very good deal locked in, so they’re happy to adapt so long as they’re not left out of pocket as a result. With this government they’re probably safe enough but you never know.†De Ridder believes Telstra could also be happy to be relieved of USO duties. “I think Telstra always felt that it had been dudded over the USO funding, that it was carrying all of the costs and the money it was getting from the others [telcos via an industry levy] wasn’t nearly enough to cover its costs,†he said. “[in addition], I think Telstra is trying to focus on being a different company these days. It doesn’t see itself anymore as being a local access network company. “It would love to think NBN is now the fixed network infrastructure and that it didn’t have any more of a role to play [in that space]. I still think that’s where it wants to be.†Fending off domestic roaming Telstra is currently batting away attempts led by Vodafone to force it to open up the regional portion of its mobile network to rivals. Domestic roaming would enable mobile users to roam on the Telstra network when out of range of their own carrier’s network. Telstra argues – among other things - that such an arrangement would disincentivise future regional investment, since it would limit the financial rewards from that spend. Vodafone argues that Telstra built its regional dominance in part on public money, and therefore the spoils should be shared. The Australian Competition and Consumer Commission (ACCC) tentatively decided in May that it would not pursue domestic roaming. Vodafone is now challenging in court the process used to come to that tentative decision. Both Telstra and Optus have joined proceedings, which has hearings set down for September. A win here might not be enough to force the ACCC to change its mind, or its decision. It could force the ACCC to refine its inquiry processes – court outcomes are hard to predict – but for the moment the value built up in Telstra’s mobile network remains safe. “A win for Vodafone doesn’t really mean a reversal of the process,†Coutts said. “It could be a bit of a pyrrhic victory.†The TPG threat Also threatening Telstra’s traditional mobile dominance is the arrival of a newcomer. Australia’s fourth mobile network is being built by TPG, boasting 80 percent population coverage at a cost of around $2 billion. Construction is set to begin next year. Opinion is divided on what this will mean for Telstra. In Telstra’s favour is that TPG can break even simply by bringing its (and iiNet’s) mobile virtual network operator (MVNO) customers on-net. That would hurt Vodafone and Optus, who provide MVNO services to TPG and iiNet respectively. The question then is how aggressive TPG will be in pursuing further market share. Coutts doesn’t see TPG as a big threat to Telstra; de Ridder, however, believes “TPG is a worryâ€ÂÂÂÂÂ. “Telstra should be worried - but not as much as they used to have to be,†he said. De Ridder speculated that TPG is now of a size where it no longer needs to play the role of maverick newcomer. “They’re almost like an incumbent now, so there’s no need for them to be too aggressive on price because they don’t need to be,†he said. “They’ve got their market share, now it’s about trying to get value out of it. They should be more mature now; I don’t think Telstra has to worry about them being as aggressive as they were before.†Recent research by UBS’ Evidence Lab in Australia found that Telstra customers were least likely to churn to TPG, mostly over concerns about its limited geographical coverage. The research found only 13 percent of Telstra customers would likely switch to a 'theoretical $25 / unlimited (with caveats)’ mobile product offered by TPG. By comparison, 23-26 percent of Optus and Vodafone customers would be tempted. However, UBS said investors were “worried about the price/ARPU [average revenue per user] impacts that TPG might have (i.e. TPG will force an industry price cascade, where Vodafone responds first, then Optus/Telstra respond in turn)". Telstra also had a “resurgent†Optus and Vodafone to add to its worries. Both Telstra’s rivals have seen gains in their net promoter scores (NPS) – a measure of customer satisfaction – outpace that of Telstra. The only buyer for NBN Co? It’s widely assumed that the government will try to sell the NBN once the project is complete - especially given long-term predictions of the rate of return that the asset might generate. The problem is, who is in a position, and on top of that willing, to buy it? Having offloaded its copper and HFC networks to NBN Co, would Telstra even want to buy them back? “I’m hesitant to say yes,†Reg Coutts said. “I don’t think Telstra’s interested,†John de Ridder concurs. “There’s no advantage anymore in having a local access network for residential. It’s just a pain. No one wants it.†However, telecommunications analyst Paul Budde believes Telstra - or perhaps an investment fund - will emerge as the potential buyer. He assumes both will only want the NBN at "a bargain price". Of course, there is always a buyer at the right price: for the government, it’s whether the right price can be achieved without splitting up the NBN, or writing down part of the asset’s value. Telecommunications entrepreneur Bevan Slattery implored the government in April to “write down $20 - $30 billion of the NBN investment and call it a social infrastructure investment.†Slattery was backed by New Street Research telco analyst Ian Martin, who expects half the government’s investment to be written off. Coutts also believes this is likely a valid path to sale. “The only way the government can potentially make the NBN saleable unfortunately is to write off some of the capital,†he said. Whether that would make the NBN asset more attractive to Telstra remains to be seen. Many see mobile technology as a threat to the NBN’s future, and de Ridder believes Telstra is firmly of that view. “Telstra’s future is 5G,†de Ridder said. NBN Co, for its part, is doing its best to look saleable. It is consistently talking up the upgradeability and future paths for the various technologies that make up its network, and is also looking to business and even the internet of things (IoT) to demonstrate it has revenue-earning potential. The NBN 'big dog' By owning the access network, Telstra has traditionally enjoyed a sizable share of market in the residential fixed-line space. Without that network asset, the company is still managing to keep that dominance in an NBN world, and analysts believe it is likely to maintain its dominant position, at least in the short term. In its most recent results, Telstra said it “continued to lead the market†with 792,000 of the total 1.6 million active NBN connections. Its 49.5 percent market share is higher than in September last year, showing it is gaining – rather than losing – ground in an NBN world. Coutts believed Telstra could increase its market share via acquisition, as the battle for the last 15-20 percent of NBN users not served by the big ISPs became increasingly congested. “If anything, there will be some rationalisation of the current NBN resellers,†he said. “There are too many of them at the smaller end, so the question is what happens to them. If we assume some consolidation, I think Telstra’s still in a very good position. “The dilemma the industry’s got is Telstra’s so much the dominant player in the game that they have many more options open to them than their competitors, so I’m pretty confident that they can maintain their dominant position and in fact shed some loss making activities [in the process].†Growing the war chest Accepting the arrival of the NBN has afforded Telstra a considerable war chest to invest into its mobile network and elsewhere. There’s the $11 billion agreements with the government comprising $5 billion in infrastructure payments, $4 billion in disconnection payments and $2 billion in Commonwealth agreements. The infrastructure portion includes long-term leases for ducts, conduits and so on. Telstra has reportedly engaged JPMorgan and Macquarie to explore the sale of this long-term lease revenue, which would bring forward revenues that otherwise would be spread out until 2045. Telstra has also done well securing additional NBN works. It won $390 million of planning and design work related to the multi-technology mix; $150 million to pilot fibre-to-the-node (FTTN) technology, and has a four-year deal to fix faults in its own copper network, which was worth $80 million in its first year alone. These kinds of funds are undoubtedly helpful as Telstra looks to the future to reshape its business and replace the billions of revenue it will no longer have from its wholesale copper business. On that front, it is already pushing speeds on its 4G network to 1Gbps and moving down the 5G path; it has strengthened its cloud and enterprise businesses; and funded an expansion into new areas such as health, where it has picked up work such as to manage a $178 million national cancer screening register. “For Telstra, it’s no longer about pipes but services,†de Ridder said. “What can they do to make themselves indispensable to certain markets.†First mover with 5G Telstra – like its Australian rivals – has already started technology trials to prepare for the arrival of 5G networks, predicted to be around 2019/2020. However, unlike the previous 3G and 4G networks, the 5G rollout is going to be highly targeted around specific use cases. “I don’t think you will see a blanket 5G coverage from day one,†Telstra’s CTO Hakan Eriksson told Mobile World Live in mid-July. “It will be rolled out where [we] need it.†Eriksson said “if history has anything to do with predictions for the future, [Telstra] will be very early with 5Gâ€ÂÂÂÂÂ. “It’s interesting to note that Telstra is about 1 percent of [equipment vendor] Ericsson’s topline but 95 percent of all the ‘world firsts’ Ericsson does in mobile is with Telstra,†he said. “Telstra is always early.†That said, Eriksson sees plenty of life left in the 4G network. Even being early with 5G, many Telstra customers may not see or need to use it. “I think there’s drama [around] 4G and 5G,†he said. “At the end of the day it’s what the consumer gets that’s the interesting thing. If they get 1Gbps over 4G or 5G it doesn’t really matter. You can [still] do a lot with 4G.†5G’s challenge, according to Telstra CEO Andy Penn, is that outside of low-latency IoT applications, no one’s really sure what it will be good for. “What is really interesting about planning and building a 5G network is that the full range of opportunities will not be clear when the networks are launched,†he said. “They will evolve with the market and with technology advances. We have no real idea what types of things the network will enable in the future. In that way 5G, like the future, is inventing itself.†Part of this is because 5G’s economics aren’t well understood. It is assumed that 5G will bring telecommunications equipment closer to the edge and increase the density of network sites. “As you go down the 5G route you’re going to have to deploy more and more fibre to serve more and more sites,†de Ridder said. “The network becomes very dense. But Telstra knows all this.†De Ridder is confident that Telstra’s track record on mobile will mean it gets 5G right. “I remember when Next G was launched,†he said. “Back in those days 3G was something that you put into metro areas. “I had a dinner one night with [Telstra’s former public policy chief] Phil Burgess and he told me a few stories like how staff in Telstra’s retail outlets had no idea when they opened boxes on the morning [of the Next G launch] that they were actually launching a national, continent-wide 3G network. It was a complete surprise to their own staff let alone the rest of the world. “To get that thing done in time, [Telstra’s then CEO] Sol Trujillo was on the phone every Monday morning to the head of Ericsson in Sweden to make sure things were on schedule. “They stole 3-4 years over Optus and Vodafone because of what they did. Optus was the leading mobile player before the launch of Next G, and Telstra took that lead off them and has stayed ahead.†Premium veneer Telstra’s success in mobile has in no small part contributed to its image as the premium telecommunications provider in the Australian market. But that veneer faded somewhat through 2016 as Telstra’s networks suffered a series of damaging outages. The company hopes to restore some of it with a $3 billion, three-year investment. It also provided its users with two free days of data usage. They were, in succession, the busiest days ever recorded on the Next G network, and should have restored some user confidence in just how much load Telstra’s network can handle. Mark Blackwell, a senior manager at EY, said “the network maxed out at 100-110 TB per hour on the 14th of February and 140-150 TB per hour on the 3rd of Aprilâ€ÂÂÂÂÂ. “They are impressive numbers, no doubt,†he said. Maintaining its premium veneer is important for Telstra to be able to retain its ability to charge a premium for access to the Next G network. Coutts believes Telstra would keep its premium positioning “for a fair while yetâ€ÂÂÂÂÂ. “By fair while I mean for the next five years. It’s a bit hard to predict beyond that,†he said. Telstra would also be aided in that regard by the reach of its network. “For people in remote areas or regional centres Telstra’s often the only player in town.â€ÂÂÂÂÂ
  25. Barrons Why Goldman Sachs Prefers Telstra Over Spark By Robert Guy July 11, 2017 11:40 p.m. ET Goldman Sachs has run its eye over Telstra (TLS.AU) and Spark New Zealand (SPK.NZ) and decided the Australia telco is a better investment than its kiwi cousin. The brokerage, which upgraded Telstra to buy in June, likes the telco's AUD1 billion productivity program, a path that Spark is also treading given the plans for cost cutting and margin expansion outlined at its recent investor day. Spark is targeting an EBITDA margin in the low 30% range (compared to 26.3% in the first half) based on cost savings, which Goldman Sachs reckons would need the kiwi telco to lower its fixed costs by around 4% across 2018-2020 for a total decline of 11%. Labor productivity is another area where both telcos are looking to save money, with Spark believing the use of technology could help cut the number of staff. Telstra is also cutting jobs: Telstra faces a similar opportunity to Spark, given its staff cost/revenue is the highest in ANZ (TLS at 19% in 1H17 vs. 11% average). Recent signs are supportive, with Telstra announcing a 4% reduction in its workforce over the next 6 months – which we estimate to be annual savings of A$160mn. So why is Telstra, rated a buy, a better investment than Spark, which is rated neutral? It all comes down to valuation and yield: We continue to believe that Telstra’s A$1bn productivity target looks somewhat conservative, with this opportunity not fully reflected in its current price. With Telstra trading on an FY19 EV/EBITDA of 6.1X and fully franked dividend yield of 6.4% vs. Spark at 7.5X and 6.0% respectively, we reiterate our preference for Telstra (Buy) over Spark (Neutral). Goldman Sachs has a price target of AUD5 a share for Telstra (which last traded at AUD4.32 a share) and NZD3.60 a share target for Spark (which last traded at NZD3.84 a share).
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