Is Telstra getting a bit too pushy and arrogant?
Telstra is now free of the encumbrance of government control but that hasn’t brought an improvement in attitude, manners or strategic thinking.
The share price is pushing back towards the $4.40 it peaked at late last month ($4/38 close yesterday), the 2007 interim profit is due out next Thursday (Feb 15) and its taking on the Federal Government over regulation in a High Court action, and telling Canberra what it should and shouldn’t be doing about it’s competition’s plans.
Telstra’s public policy and communications managing director, Phil Burgess, says he is stunned by Optus’s application to extend its 3G network into regional areas of Australia (last week’s cover story of Air Weekly: Telco Wars).
His knee jerk reaction yesterday, reported on the AAP newswires, shows that the wars written about last week are well and truly underway: it’s just not capital spending that’s rising: so is the rhetoric.
What has got up Phil’s goat is the move by Optus (Oliver Twist like) to try and wring $200 million from the Federal Government to help finance the expansion of the network.
The cost was put at some $800 million in the Optus announcement 10 days or so ago but there was no mention of asking Canberra for help. That came this week.
But Telstra has its hand out to Canberra as well, looking for hundreds of millions of dollars.
Phil Burgess told AAP that the problem with the proposed Optus network is that it will cover territory already covered by Telstra. (Isn’t that competition?)
Phil says Telstra should be allowed to cover unconnected Australians first (and have a first mover monopoly and first crack at building a customer base).
He said Australian taxpayers should not subsidise network duplication when there are hundreds of thousands of Australians who are not connected at all,” he has been quoted as saying in media reports.
And coverage of 99 per cent of the population still leaves about 200,000 without coverage.
Telstra last week asked the Federal Government for $600 million to help connect 100 per cent of Australian communities.
Optus says the $200 million from Canberra would allow it to boost the size of its new third generation (3G) mobile network by almost half and reach 98 per cent of the population.
Optus said it was planning to build 2000-2500 base stations and deliver coverage to 650,000 square kilometres of the country under the $800 million plan of last week.
But now it says the application for the $200 million would allow it by a further 500,000 square kilometres using about 750 base stations. Around $170 million on top of the money from the Government would be provided by Optus, taking its total spend to almost $1 billion.
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But the perils of being a Telco were shown in the third quarter results from Optus, also released yesterday.
Net profit slid 15 per cent for the third quarter as customers continued to drop their fixed lines.
Net profit amounted to $135 million compared to the corresponding quarter in the 2006 year (financial year ending March for Optus and its parent, SingTel)
He said Optus continued to expand its 3G network during the third quarter to December 31, 2006, grew its mobile and broadband customer bases, increased data speed and delivered better content applications to customers.
Optus Mobile continued to be the largest contributing division to earnings with revenue growing three per cent to $1.10 billion during the quarter.
Capped plans to retail customers continued to hurt revenue growth, with around 25 per cent of the Telco’s total postpaid mobile users choosing a capped plan – up from 14 per cent a year ago.
Optus grew its mobile subscriber base by 76,000 subscribers while 276,000 subscribers took up the 3G service. The growth in mobile GSM subscribers was however substantially lower than the figure for the same quarter of 2006
Revenue for wholesale fixed lines firmed 1.3 per cent with strong data and IP revenues offsetting the decline in voice.
Shares in SingTel slipped 12c cents to $2.86 as investors worried about the impact on earnings of the bigger capex spend on 3G and the impact of the loss in voice revenues and the rise in capped mobile plans.
Encouragingly, the company said EBITDA margin of 26 per cent was maintained for the third consecutive quarter.
Optus said “this was achieved with disciplined marketing strategies and careful cost control. For the quarter, Optus’ operating revenue was up 3.1 per cent, operational EBITDA was down 3.9 per cent and Optus’ net profit of $135 million was down 15 per cent. Excluding acquisitions, Optus’ operating revenue grew 1.1 per cent.
“In the quarter, operating cash flow was at $465 million, comparable to the preceding quarter and $23 million higher than the same quarter last year with favourable working capital movements.
“Cash capital expenditure this quarter increased to $353 million as Optus rolled out new mobile and fixed-line networks, purchased additional Southern Cross cable capacity, made payments for the D-series satellites and continued the fit out of the new Sydney headquarters.
Mr Paul O’Sullivan, Optus Chief Executive, said “Optus’ growth was achieved notwithstanding increased mobile cap penetration, declines in fixed telephony and the negative impact of mobile termination rates.
“Despite negative impacts on revenue growth from reduced mobile termination rates, Optus remains committed to maintaining market share, managing costs and investing for growth. “During the third quarter, we continued to expand our 3G network, we grew our mobile and broadband customer bases, we increased data speeds and delivered better content and applications to our customers,” he said.
“Optus Mobile continued to be the largest contributing division to Optus’ e
