Telstra shares recovered most of Tuesday’s kneejerk loss yesterday as some sheepish investors did the research they should have done after the Federal Government announced plans to seduce the Telco into restructuring itself.
The shares fell 14 cents on Tuesday to $3.11, yesterday they regained all those losses (almost $2 billion in value) to end at $3.24.
They should climb further today after the surge on global markets continued overnight.
A flood of comment emerged from analysts and others, from the predictable and aggrieved shareholders, former advisers and old Federal Government advisers, to the National Australia Bank which excitedly claimed that the Telco would become a riskier company and Moody’s, the ratings group, put its shares on credit watch for a possible downgrade.
Other comments were in a similar vein, claiming that the Rudd Government was doing something nasty or underhand, when in fact it is a major structural reform for the economy, similar in some respects to the tariff cuts the Hawke and Whitlam Governments engaged in which ruined large sections of the protect rag and show trades, but left the wider economy better off.
But helping were analyst notes to clients from investment banks and brokers who mostly saw the Government’s moves as good news.
But those who worried on Tuesday and yesterday should have read the recently released Telstra annual report, where in the first couple of pages, the company included a few charts and comments from chairman, Catherine Livingstone and CEO, David Thodey (a significant dual commentary) which showed how the Government is doing it a big favour .
"Mobile services revenue grew by 10.0% to $6,101 million and we now have more than ten million mobile customers, including over one million wireless broadband customers. It’s worth noting that mobile revenue exceeded the fixed telephony revenue by more than $500 million in FY09."
So in the 2009 financial year, revenue from mobile services of $6.1 billion exceeded that from the basic business of Telstra in its long history, and the one it is being seduced into parting with by the Government.
It’s almost as though the Government has read the Telstra annual report and had a chat to it about it and offered it a deal it can hardly refuse.
Basically the Government has suggested to Telstra that if it gets rid of its low margin, sliding business, it will be able to expand its faster growing mobile, wireless and broadband operations.
Mobile revenue rose 10%; there are more than 10 million mobile customers and more than 1 million wireless broadband customers.
"Our consumer segment saw a decline in PSTN revenue of 2.2% to $3,777 million while total fixed revenue increased by 0.8% due to growth in fixed internet.
"Mobile revenue grew by 5.2% to $4,428 million which more than offset the decline in PSTN and other fixed telephony revenue.
"Within mobiles, mobile services revenue increased by 8.7% to $3,728 million driven by continued customer growth and an increase in average revenue per user (ARPU) which demonstrates the value of our Next G network."
The same was in Telstra’s business where PSTN (Public Switched Telephone Network) revenue fell (down 2.7%) and mobile revenues rose (11.1%).
And, if Telstra doesn’t agree to the deal, it gets to keep the existing radio spectrum and facilities it has to run its business at its current level, but loses all chance of expanding into these faster growing areas, which have already proven themselves to be the future for the company’s business plan.
There’s a case to be made for wondering why Telstra hasn’t already embarked on planning to get rid of the slow and low returning PSTN business (which comprises the home and trunk line business).
The evidence is there in the annual report that this is the future.
Why has it taken the Federal Government and Senator Conroy to lead the company by the balance sheet to what will be seen as the right decision?
Other companies here and offshore regularly divest themselves of declining businesses to concentrate on areas with more growth potential, so why not Telstra.
BHP Billiton did in 2001-02 when it sloughed off its underperforming BHP Steel division which was considered not to be central to its core businesses.
They because BlueScope Steel and OneSteel, which have grown and matured since then, and have survived the global crunch in the past year.
They are bigger and more profitable businesses than BHP Steel was and BHP itself is bigger and far more profitable (thanks in part to the takeover of WMC and the explosion in oil prices, plus the China boom, which OneSteel has managed to hook on to.
And, finally, Sol Trujillo and his now departed management team from the Us were not good for Telstra, except for one very important point: the wireless Next G network which remains the most important asset at the Telco, and the one that has allowed the Government to remind the company where its future priorities should lie.
