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Telstra sets aside $1bn for Asian acquisitions, investment
THE AUSTRALIAN OCTOBER 24, 2014 12:00AM
Mitchell Bingemann
Reporter
Sydney
Telstra’s CEO, David Thodey, and finance chief, Andy Penn, addressing media. Source: News Corp Australia
TELSTRA is putting aside up to $1 billion to spend on overseas acquisitions, partnerships and infrastructure investments as it looks to establish its foothold in the burgeoning Asian region.
The telco has in the past articulated its desire to boost its growth options in Asia, but until yesterday it did not reveal how much it planned to spend on infrastructure in the region to establish its presence.
“I would expect to potentially have some involvement in the infrastructure build and therefore some capital investment, but I think that would be more in the order of hundreds of millions rather than the billions of dollars,” Telstra chief financial officer Andy Penn told investors and analysts at the company’s annual strategy day in Sydney.
Telstra’s Asian strategy is being driven across three platforms: to grow its global enterprise services division, capitalise on the technology shift in Asia from 2G and 3G mobile services to 4G, and the establishment of consultancy services to help incumbents build data-oriented networks. It is in the construction of new high-speed mobile services in the region, which a growing middle class is increasingly looking to access, that Telstra is most likely to invest its expertise and capital in.
“There is a bottleneck around that infrastructure and we believe there needs to be a transition to data-based networks both from a technology point of view and a business point of view,” Mr Penn said.
“That’s clearly where we believe we can play a role.”
Mr Penn ruled out buying any large-scale businesses in Asia but said the telco was actively looking for bolt-on investment opportunities in infrastructure and consultancy services.
“If you look around the region, realistically the opportunities to buy existing incumbents at a price which will drive shareholder value are pretty limited,” Mr Penn said.
“But we do think there are opportunities partly where we can support infrastructure and to deploy our capability to help companies make that transition.
“It could involve some infrastructure investment and it could involve some consultancy and other softer involvement as well.”
Any acquisition or partnership opportunities in Asia will be carefully scrutinised by Telstra for earnings potential, particularly as foreign investments in the region remain under strict foreign ownership curbs because of the critical nature of telecoms infrastructure.
Telstra earlier this year signed the first of what it hopes will be many new deals in Asia.
The profit-sharing deal with Telkom Indonesia is a joint venture that will provide telecom services to enterprise customers.
Under the deal, Telkom will own a 51 per cent stake in the joint venture and Telstra 49 per cent.
Both companies are investing “tens of millions of dollars” to get the new division ready for operation and sales early next year.
The establishment of the JV is the latest move by Telstra to boost its growing Network Application Services division across the region, a target that chief executive David Thodey has highlighted as a key growth area.
The portfolio, which provides enterprise and business customers with managed network and cloud-based communications services, increased revenue 27.8 per cent to $1.9bn in the year to June 30.
Over the next decade, Telstra wants to establish its growing portfolio of enterprise services as a core revenue contributor alongside its mobiles business, worth $9.2bn a year.
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Cashed-up Telstra stuck at the growth crossroads
THE AUSTRALIAN OCTOBER 25, 2014 12:00AM
Mitchell Bingemann
Reporter
Sydney
FLUSH with cash from recent divestments and a steady flow of payments from NBN Co, Telstra is back in vogue.
As it lays bets on new technologies and acquisitions, the $68 billion telco is struggling to explain where the next wave of growth is likely to come from.
While there’s no shortage of ideas or new businesses opportunities for Telstra to pursue, the unanswered question remains: will any succeed?
If you ask Telstra chief executive David Thodey, he will answer with an unequivocal yes.
But with the looming loss of its fat-margined fixed-line telephony business to the National Broadband Network in return for $11.2bn, and a slowing mobile market, the reality is that Telstra’s long-term future is up for grabs.
Telstra has of course seen this movie before. Almost a decade ago, when it was under the leadership of now-NBN Co chairman Ziggy Switkowski, the telco posted its biggest ever profit as a privatised company: a $4.45bn bonanza.
It was a time of fixed-line telephones, dial-up internet connections and mobile phones as big as bricks, but even back then there were signs the telco’s rivers of gold — its fixed-line voice business — were fast drying up.
At that time, investors and analysts wanted to know how Telstra would grow when those rivers finally dried up. The answer then? Telstra’s world-beating Next G mobile network.
That network — and sustained billion-dollar investments in it each year — laid the foundation for Telstra’s explosive growth through its mobiles business, which now boasts more than 16 million subscribers who annually pour in $9.67bn of revenue into the company’s coffers.
But with Thodey acknowledging this week that the mobile wave is slowing, the telco again finds itself at the crossroads.
The critical question now is whether Telstra can take on the protean shift needed to grow new businesses and its bottom line. Thodey is adamant it can.
“For Telstra we know if we don’t reinvent ourselves, if we don’t continue to innovate in some way, that our customers will tell us and they’ll leave us, and when they leave us we don’t have a business,” Thodey told guests at a business lunch in Sydney this week.
Big change of course requires big bucks. But if there’s one problem Telstra doesn’t have, it’s a cashflow one.
The telco had $7.4bn in free cash floating on its balance sheet at the end of the 2014 financial year thanks to its 70 per cent sale of its Sensis directories business as well as its 76.4 per cent stake in Hong Kong mobile service business CSL for about $2bn.
While Telstra has already returned $1bn of that to investors through a share buyback and spent close to another billion on small-scale acquisition throughout the last 12 months, much remains for the telco to spend.
However, before Telstra starts splashing its cash to fend off internet giants like Google and Facebook, it would be instructive for the telco to heed the lessons of its past.
Chief among such lessons was Telstra’s troubled relationship with its print directories arm Sensis, the home of the White and Yellow Pages.
Like Telstra’s monopoly copper network, the Yellow Pages was a cash cow, generating margins of more than 60 per cent.
But rather than another river of gold Sensis ultimately turned into a symbol of one of the telco’s biggest failures to deliver shareholder value as the telco missed key opportunities to sell the moribund business at its peak. In 2005, in the days before Sensis was forced to weather attacks from Google and smaller and more nimble online competitors, the asset was valued at close to $12bn.
At the start of this year Telstra sold a 70 per cent stake in the White and Yellow Pages publisher for just $454 million, giving Sensis a total value of just $649m.
Thodey, however, reckons the days of Telstra laying big bets on high-margin businesses are behind it.
“We went through a stage saying that unless we can find something with equal margins that we’ve got today, then we wouldn’t do anything.
“That’s just an unrealistic expectation now,” he told analysts and investors at the telco’s annual strategy update in Sydney this week.
The new reality is that any businesses that attract Telstra’s burgeoning cash reserves will have to be operations with small profit contributions and high hopes.
“In five years’ time we will have new business revenue streams with lower margins. But hopefully they will get better returns as we go forward,” Thodey said.
Some of the focus of Telstra’s recent investment activity has been on smaller and more agile software developers, which offer services targeting the big drivers of internet consumption such as video and increasingly healthcare applications.
In August, Telstra paid an extra $US270m to lift its stake in Silicon Valley-based video platform maker Ooyala from 23 per cent to 98 per cent.
The acquisition of Ooyala — which helps media companies such as ESPN and Bloomberg to stream videos to smartphones, computers and tablets — is just one of many new digital vehicles being targeted by Telstra as new growth areas.
Local interests include a $100m investment in its freshly elevated health-services division — which includes e-prescription exchange provider Fred IT and health appointment marketplace Health Engine — as well as investments in online restaurant reservation Dimmi, digital signage outfit Mandoe Media and cloud-based communications software provider Whispir.
These string of investments all come with the possibility that they could fail and cost Telstra hundreds of millions of dollars in writedowns. The write-off of its $302m investment in two Chinese mobile companies, Sharp Point and China M, is a case in point.
But like most big incumbent telcos around the world, Telstra is desperate not to be sidelined by software and tech firms like Skype and Whatsapp, which are eagerly eating the telco’s voice and messaging lunches.
The other area that remains ripe for Telstra to gamble its cash on is investment into new businesses that leverage the company’s existing strengths.
One such area is in cloud computing, and the telco’s fast-growing Network Application Services, both of which are now being pushed through Asia where the telco hopes to tap in to demand from big-ticket corporate customers.
A key battleground for Telstra is Asia where the telco hopes to become a dominant technology and services company for the region’s burgeoning middle class.
The telco is putting aside up to $1bn to spend on overseas acquisitions, partnerships and infrastructure investments in the region to establish its presence in the region.
While it seems like the days of Telstra dropping billions on a mammoth acquisition are far behind the telco, some growth it has to be said is better than no growth. Or through one of the smaller bets, the telco might be on to something.
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Telstra allots $1bn for Asia growth
OCTOBER 28, 2014 9:00PM
Mitchell Bingemann
Reporter
Sydney
Telstra is putting aside up to $1 billion to spend on overseas acquisitions, partnerships and infrastructure investments as it looks to establish its foothold in the burgeoning Asian region.
The telco has in the past articulated its desire to boost its growth options in Asia, but until yesterday it did not reveal how much it planned to spend on infrastructure in the region to establish its presence.
“I would expect to potentially have some involvement in the infrastructure build and therefore some capital investment, but I think that would be more in the order of hundreds of millions rather than the billions of dollars,” Telstra chief financial officer Andy Penn told investors and analysts at the company’s annual strategy day in Sydney.
Telstra’s Asian strategy is being driven across three platforms: to grow its global enterprise services division, capitalise on the technology shift in Asia from 2G and 3G mobile services to 4G, and the establishment of consultancy services to help incumbents build data-oriented networks. It is in the construction of new high-speed mobile services in the region, which a growing middle class is increasingly looking to access, that Telstra is most likely to invest its expertise and capital in.
“There is a bottleneck around that infrastructure and we believe there needs to be a transition to data-based networks both from a technology point of view and a business point of view,” Mr Penn said.
“That’s clearly where we believe we can play a role.”
Mr Penn ruled out buying any large-scale businesses in Asia but said the telco was actively looking for bolt-on investment opportunities in infrastructure and consultancy services.
“If you look around the region, realistically the opportunities to buy existing incumbents at a price which will drive shareholder value are pretty limited,” Mr Penn said.
“But we do think there are opportunities partly where we can support infrastructure and to deploy our capability to help companies make that transition.
“It could involve some infrastructure investment and it could involve some consultancy and other softer involvement as well.”
Any acquisition or partnership opportunities in Asia will be carefully scrutinised by Telstra for earnings potential, particularly as foreign investments in the region remain under strict foreign ownership curbs because of the critical nature of telecoms infrastructure.
Telstra earlier this year signed the first of what it hopes will be many new deals in Asia.
The profit-sharing deal with Telkom Indonesia is a joint venture that will provide telecom services to enterprise customers.
Under the deal, Telkom will own a 51 per cent stake in the joint venture and Telstra 49 per cent.
Both companies are investing “tens of millions of dollars” to get the new division ready for operation and sales early next year.
The establishment of the JV is the latest move by Telstra to boost its growing Network Application Services division across the region, a target that chief executive David Thodey has highlighted as a key growth area.
The portfolio, which provides enterprise and business customers with managed network and cloud-based communications services, increased revenue 27.8 per cent to $1.9bn in the year to June 30.
Over the next decade, Telstra wants to establish its growing portfolio of enterprise services as a core revenue contributor alongside its mobiles business, worth $9.2bn a year.
This article first appeared in The Australian Business Review.
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Telstra now an entertainment triple threat
DAVID SWAN NOVEMBER 03, 2014 4:00PM
Telstra has pushed go on its 'Triple Play' bundles that will see the telco offer phone calls, broadband and entertainment packages in conjunction with Foxtel.
Dubbed the Entertainer Supreme Bundles, Telstra's new offerings include Foxtel’s iQHD set-top box, a free modem and free installation, and start at $100 a month on a two-year contract.
Telstra director, fixed broadband and bundles Stuart Bird told The Australian the company would continue to market its T-Box set-top box but expected the number of households to sign up for the new packages would surpass the 200,000 homes that have so far taken up its Entertainer triple-play T-Box packages, launched in May.
“Our research has shown that families are increasingly triple-screening: they are consuming content not just on television but increasingly on tablets, smartphones and laptops, often at the same time," Bird said.
“Our new Entertainer Supreme Bundles provide Aussie families with the ultimate entertainment package to enjoy on multiple devices throughout the home and on-the-go, at great prices.”
“The combination of premium Foxtel content, superfast broadband and the reliability of Telstra’s fixed and mobile network ensures our customers will get more out of their home entertainment across multiple devices.”
Mr Bird confirmed Foxtel's online service, Foxtel Go, is also included with all packages. “We’ve found that 56 per cent of connected smartphone users will multitask while enjoying entertainment, such such as researching an actor on a smartphone while watching a movie on television," he said.
“That’s why the Entertainer Supreme Bundles represent such value – they deliver premium content to multiple devices for affordable prices.”
Telstra’s Entertainer Supreme Bundles include:
40+ premium Foxtel from Telstra channels
IQHD set top box – featuring the ability to record and rewind live TV, as well as Look-Back
Fast and reliable broadband on Telstra’s fixed line network
Fixed line calls
“Customers feel like they’re paying too much for pay-TV and they’re right,” Mr Bird said.
“This is all about giving families better value.”
Mr Bird also told The Australian that Telstra would launch a mass-market marketing push that includes television, press inserts, radio and digital to promote the new triple-play bundles from November 9 through advertising agency The Monkeys.
He said customers were placing increasing demands on their home entertainment network and did not want to be faced with “buffering”, or delays, when consuming content online.
“Our research has shown families are increasingly triple-screening: they are consuming content not just on television but increasingly on tablets, smartphones and laptops, often at the same time,” Mr Bird said.
Foxtel will also launch its own triple-play offer bundling broadband and telephony services with pay-TV in the first quarter of next year.
As we reported last month Foxtel slashed its prices in response to competition from piracy and a competitive TV landscape, with entry level standalone Foxtel plans now starting at $25 per month.
For more information on Telstra's bundles see the dedicated website here.
Foxtel is part-owned by News Corporation, publisher of Business Spectator.
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Telstra reduces Autohome stake
MAGGIE LU YUEYANG BUSINESS SPECTATOR NOVEMBER 07, 2014 12:00AM
TELSTRA remains committed to its Asian strategy and is still looking for growth opportunities in the region, after announcing a plan to sell down an estimated $US278 million ($323m) stake in a Chinese car sale website.
The US-listed Autohome has proposed to sell American depository shares, including those held by Telstra. The telco giant expects to cut its 63.2 per cent stake to about 57 per cent at the conclusion of the sale.
Telstra will pocket about $US278m after the selldown, based on Autohome’s market capitalisation of $US4.6 billion after the announcement, according to Bloomberg. Morningstar analyst Ross MacMillan said the fact Telstra would retain its controlling stake suggested the company was still highly committed to growth opportunities in Asia.
“It’s a small transaction to sell, (and) it’s just a realignment of their investments,” he said.
“We will continue to see Telstra looking for solid growth opportunities in the Asian region.”
Telstra reshuffled its management team earlier this year to put more focus on Asia, after flagging a plan to generate about 30 per cent of revenue and profits from Asia by 2020.
It is understood Telstra’s team in Asia has put forward a couple of acquisition opportunities to the board, which have been rejected for the moment.
But analysts believe Telstra is still actively looking to invest in the region, with some bankers with Asian expertise and experience already putting acquisition proposals to the company.
“Telstra is really open to anything. Potentially they are going to take a majority position so they can have an influence on the board and the strategy,” said Mr MacMillan.
Indonesia, The Philippines and Thailand seem to be the most attractive markets in Asia for Telstra, Morgan Stanley analysts have previously told clients.
A spokeswoman for Telstra declined to comment on the company’s future plans in Asia.
Telstra shares closed at $5.67, up 4c.
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Telstra shares fly high on $11.2bn NBN deal
THE AUSTRALIAN DECEMBER 16, 2014 12:00AM
Mitchell Bingemann
Reporter
Sydney
TELSTRA’S reworked $11.2 billion deal to participate in the National Broadband Network has helped the telco giant’s shares defy a market sell-off precipitated by government revelations that the budget deficit would blow out to $40.4bn.
Shares in Telstra jumped 0.7 per cent to $5.74 yesterday in a falling market that shed 0.64 per cent as the government unveiled its update for its mid-year economic outlook.
The jump in Telstra shares came as analysts and investors cheered Telstra’s reworked NBN deal, saying it would protect shareholder value and secure the company’s role in the mammoth infrastructure project.
“We welcome the new deal as it secures their cash payments schedule under NBN and avoids material cost obligations in the future,” said Citi analyst Justin Diddams. “That said, there’s limited change to our core Telstra valuation but it does remove an overhang.”
Telstra signed its revised agreement with NBN Co over the weekend. The $11.2bn net present value deal will see the ownership of Telstra’s copper and pay-TV hybrid fibre-coaxial (HFC) networks transferred to NBN Co.
Those assets will be used to construct the Coalition’s “multi-technology” NBN, which will use Telstra’s copper network to connect homes instead of Labor’s approach, which involved laying fibre-optic cables direct to premises.
According to calculations from Mr Diddams, the revised deal will see Telstra receive a cash windfall of about $18bn from NBN Co over the next eight years. Those payments will cover disconnections, infrastructure leases and policy changes that will benefit Telstra.
In total, Mr Diddams said the deal was worth about $1.30 per share of value to Telstra.
“We welcome the payments, providing a platform for reinvestment and/or increased shareholder returns,” he said.
“However, we view them as already priced into market expectations, (and) as such retain our neutral rating.”
There could be additional value handed to Telstra if the telco decides to tender for work from NBN Co to remediate the copper network and build portions of the project around the nation.
As NBN Co progressively takes control of Telstra’s copper network for its fibre-to-the-node system, the company will also take on responsibility for maintaining Telstra’s century-old copper network.
NBN Co has not yet determined the cost for maintaining the copper network, but it is understood the company is looking at options to outsource the work.
Mr Diddams said the transfer of remediation work to NBN Co as well as the reduced complexity of processing payments to Telstra would increase shareholder protection from any execution risk that might emerge in the network construction of the NBN.
“For Telstra, the revised deal with NBN Co represents a net positive, effectively securing the cash payments for its loss of customers and the provision of infrastructure required to build the NBN,” Mr Diddams said.
“This deal also removes a potential overhang on Telstra around the future cost obligations of copper and HFC networks.
“It appears both Telstra and NBN Co have negotiated a mutually beneficial deal.”
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Find Telstra to be more interesting than Singtel at current price. Better clarity on divesture as well. It could be a candidate in our Special Situation Portfolio.
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