TLS - Telstra Corporation

[The Owls]

Quote "Telstra shares have rebounded from losses driven by fears its likely structural separation will hurt earnings, with analysts now predicting changes to the business could actually improve shareholder value."

The above quote was in the shares to watch today in thebull.com.au today. As a retired person looking after our own superannuation fund how can we take the advise serious when Tuesday the market for TLS shares was down down down and yesterday was up up up. Today we read that what the Government did could now be good for TLS shareholders. Is the spin, a guess or just hope.

Where were the analysts on Tuesday who are now predicting the changes to the business could actually improve shareholder value. Every analyst is smart after the event.

 

[Gillie]

Does anyone know what the breakdown of TLS is in terms of Retail, wholesale and the Foxtel is as a percentage?

If you have any articles on this it would be much appreciated.

 

[Kieran]

After the govt announcement I did a bit of research on Telstra after consistently dismissing it as an evil monopoly for the past couple of years. I believe the split will be a great thing for the country in terms of competition but also gives shareholders certainty with regard to how the company can/will proceed into the future.

At a price of $3.10 (about a 4.6% drop from Friday's close of $3.25) and assuming dividends hold at 28c/pa, that is a fully franked dividend of 9%.
Of course there is always the possible upside or downside with regard to the split of the company but I doubt it's the end of the world for Telstra. At $3.10 I'll likely dip my toes in the water, unless there's some bad news in the meantime.

 

[mikes]

did i hear that canberra is threatening to give all the new generation mobile spectrum to the singapore owned optus and other foreign owned companies and zilch new spectrum to ozzie icon ( with large shareholdings from the ozzie battlers) telstra - surely not.

prev held telstra, not now, though some rellies have small holdings.

 

[Kieran]

I haven't heard that at all (the optus part)

The Government has said as long as Telstra doesn't split (etc...) then the government will block any attempt by Telstra to acquire further radio spectrum for their mobile network. This is legally allowable since the Government owns the spectrum (or at least the licenses to use it) which makes it a very important bargaining piece.

Whether or not that spectrum is then sold to competitors is, in my opinion, irrelevant as Telstra needs it regardless. Telstra not having it is just as bad as no one having it or a competitor having it - if it's not under Telstra's control they can't make money from it and the Government knows this - hence their "threat"

 

[TheAbyss]

Thought i would throw in my two cents worth regarding TLS and the NBN.

Any NBN roll out will have to be via existing infrastructure hence why the govt is now talking break up. Reason being they need access to the copper network.

Once the copper network is available they can look to deliver an NBN to deliver video and data to all and sundry (similar to Hong Kong where you can order a single pay TV channel; if you like). The NBN will use a device which allows them to transmit data over a copper cable using an end point similar to an ADSL modem. That will allow delivery without the billions required to lay fibre everywhere.

BTW the hardware is NEC in HK so no real gain for us here.

So the question for TLS holders is will we get a fair price or not? We will however the trade off will be TLS involvement in the NBN roll out is no longer a must once this happens as it becomes an auction to see who can provid ethe hardware and billing once the last mile is resolved.

A bit to think about and thought provoking i hope.

Key points are

1.Do TLS get a fair price for the infrastructure? - If so a positive for holders
2. Without the leverage that the infrastructure provides what do Telstra have to offer that the competitors do not? Price war helps no one.

 

[shiftyphil]

Any NBN roll out will have to be via existing infrastructure hence why the govt is now talking break up. Reason being they need access to the copper network.

Once the copper network is available they can look to deliver an NBN to deliver video and data to all and sundry (similar to Hong Kong where you can order a single pay TV channel; if you like). The NBN will use a device which allows them to transmit data over a copper cable using an end point similar to an ADSL modem. That will allow delivery without the billions required to lay fibre everywhere.

There's no copper in the NBN. It's been fibre all the way for a while now.

They've already announced it'll be GPON.

 

[skyQuake]

There's no copper in the NBN. It's been fibre all the way for a while now.

They've already announced it'll be GPON.

No copper? Thats a bummer for shareholders. At least if it was copper wiring it could be cashed in for scrap metal!

 

[TheAbyss]

There's no copper in the NBN. It's been fibre all the way for a while now.

They've already announced it'll be GPON.

And how many years will that take to realise?

In the interim, by buying the infrastructure arm from Telstra (Valued between 10 and 20 billion dollars by analysts) The govt will allow the successful NBN bidder access to all of the copper infrastructure comprising of the copper itself, ducts, conduits and pipes.

This will allow the bidder to use the ducts and conduits etc to run the fibre which is the end goal.

However in the shorter term they can also offer a copper based solution which will allow them to fulfill the govt mandate of delivering data to every household with the added benefit of generating revenue which they could use to fund the roll out the fibre on an interim basis.

 

[shiftyphil]

And how many years will that take to realise?

In the interim, by buying the infrastructure arm from Telstra (Valued between 10 and 20 billion dollars by analysts) The govt will allow the successful NBN bidder access to all of the copper infrastructure comprising of the copper itself, ducts, conduits and pipes.

This will allow the bidder to use the ducts and conduits etc to run the fibre which is the end goal.

However in the shorter term they can also offer a copper based solution which will allow them to fulfill the govt mandate of delivering data to every household with the added benefit of generating revenue which they could use to fund the roll out the fibre on an interim basis.

The original NBN proposal was scrapped months ago.
http://www.minister.dbcde.gov.au/media/media_releases/2009/022

There is no 'bidder' anymore. There's a new goverment owned company to build and manage a completely new network.

 

[TheAbyss]

Sorry. Replace bidder with "The Company". Was that changed because the net value of the NBN as proposed was negative $9 billion?

If Telstra get $8-10 billion for the infrastructure plus costs for restructuring their It systems etc (estimated at approximately 2.5 billion) then it could be good for everyone all round.

No winners if a separate infrastructure is used so whatever happens it must use the existing trenches etc or the project will never get off the ground. Aerial is not an option and the economics say a separate trench to what is there is not viable.

Great to have some constructive comments on where readers feel this will end up.

 

[johannlo]

I would love for a parallel universe opportunity to call the govt's bluff.

I would not trust a brand new, govt appointed organisation to competently execute a massive and complex engineering project like the proposed NBN. For heaven's sake they're gone all in without even having concrete figures available. Its not viable without getting Telstra's assets/cooperation and everybody who knows anything about telecoms knows this.

For arguments sake, say Telstra sticks to their guns, loss of medium term future revenue (ie 4G frequencies, only an issue in 3-5 years time and even then tech may develop to further utilise existing 3.5G/UTMS better) is easily compensated (in medium term I stress) by existing flows, and Telstra already has a friggin NBN for all intents and purposes (from a big picture economic POV, the single digit % where its uneconomical to roll out doesn't count). They could easily roll out enough infrastructure so the last mile copper is pushing 20Megs plus to vast majority of households (already do actually).

Meanwhile the govt has to build it all from scratch, with zero income stream. And where are they getting their engineers from? Do you expect Optus, AAPT, Soul and all the other bit players to be able to organise a piss-up in a brewery? The only bullet left is further regulatory smackdown.

If nobody blinks then its actually Telstra holding the cards. But the govt is now in a corner (of their own making) and Conroy is a mongrel (a stupid one at that but still a mongrel) and I do not expect him to back down now that he's placed his cards and reputation on the block. The best outcome we can hope for, from both a citizen and a TLS investor POV, is that a compromise is reached whereby TLS participates and assists in NBN whilst being compensated with fair value. Now did that really need the govt to turn around and play Sol, we only just got rid of him lol.

 

[TheAbyss]

I would love for a parallel universe opportunity to call the govt's bluff.

I would not trust a brand new, govt appointed organisation to competently execute a massive and complex engineering project like the proposed NBN. For heaven's sake they're gone all in without even having concrete figures available. Its not viable without getting Telstra's assets/cooperation and everybody who knows anything about telecoms knows this.

For arguments sake, say Telstra sticks to their guns, loss of medium term future revenue (ie 4G frequencies, only an issue in 3-5 years time and even then tech may develop to further utilise existing 3.5G/UTMS better) is easily compensated (in medium term I stress) by existing flows, and Telstra already has a friggin NBN for all intents and purposes (from a big picture economic POV, the single digit % where its uneconomical to roll out doesn't count). They could easily roll out enough infrastructure so the last mile copper is pushing 20Megs plus to vast majority of households (already do actually).

Meanwhile the govt has to build it all from scratch, with zero income stream. And where are they getting their engineers from? Do you expect Optus, AAPT, Soul and all the other bit players to be able to organise a piss-up in a brewery? The only bullet left is further regulatory smackdown.

If nobody blinks then its actually Telstra holding the cards. But the govt is now in a corner (of their own making) and Conroy is a mongrel (a stupid one at that but still a mongrel) and I do not expect him to back down now that he's placed his cards and reputation on the block. The best outcome we can hope for, from both a citizen and a TLS investor POV, is that a compromise is reached whereby TLS participates and assists in NBN whilst being compensated with fair value. Now did that really need the govt to turn around and play Sol, we only just got rid of him lol.

Great post.

One way to ensure Telstra stays interested (which is a must for this to get some traction) is when (if) the infrastructure is hived out for the NBN, Telstra take a mix of cash and Equity. That way Telstra will have some strong reasons to migrate their base over to the NBN. Cash short term and increasing revenues long term is a popular theme with share holders.

 

[ROE]

if TLS dont play ball the government can just
fund the whole NBN, force TLS to split.

Sell the NBN as a public float at half price and on the cheap and let the new investors compete with Telstra

Competition Solved

Cant remember when was the last time a company fight the government and wins
it's like kids get into an argument with their mum and dad who rules the house, who make the law
and has endless pocket and the kid expect their parents to bend to their will

 

[johannlo]

fund the nbn how?

They already expect 49% funding from private investment - WITHOUT any proper costings or showing how ROI can be achieved. A quick google will get you lots of back of envelope costings that show that its v difficult - if not impossible - to achieve a ROI that will attract private capital, without charging high costs and assuming massive uptake.

Here's just a few links

http://www.crn.com.au/News/155202,nbn-cost-debate-picks-up-steam.aspx

http://www.commsday.com/node/325

http://www.businessspectator.com.au/bs.nsf/Article/The-myth-of-NBN-profits-pd20090731-UG4FD?OpenDocument

You might be right if this was a dictatorship, but the government does not have that luxury of being able to throw away billions without a massive backlash, also blowing a hole in the budget.

lets also not forget the legal issue i.e. if they go too heavy with regulation and destroy shareholder value - the value that they sold off in T1, 2, 3.

Here's a genius idea: NBN is going to cost ~43 billion they say. TLS's market cap is: ~43 billion, with an NBN already effectively in operation and retail arms making good profits. Also govt already has some of the shares so it won't cost 43 billion. See how I am joining the dots..... why is it that this most obvious of approaches (re-nationalise Telstra) has not even been discussed?

 

[boofhead]

My assumption would be because it would involve buyings lots of copper, ADSL equipment etc. that will be superseded. Add to that it doesn't give people fibre etc. that is starting to be rolled out now.

 

[johannlo]

Copper is far from superceded, greater and greater speeds are being squeezed out of DSL technologies all the time . Here is a hint:

http://en.wikipedia.org/wiki/Very_high_bitrate_digital_subscriber_line

Far more economical to increase DSLAM coverage (more exchanges, FTTN, whatever) than run expensive fibre to everyone's house when most people don't want to be paying for the privilege. Those who want it, give them an option to pay for the cost themselves.

Either that or give up the backyard and two cars and squeeze everyone into hi rise flats, how do you think Hong Kong and South Korea etc. can deliver 100 megs to the door and make it economically viable? Basically they have FTTN to the basement of the apartment / housing estates then the 'last mile' is still copper (ie up 20 stories instead of 3 kms but the principle and architecture is identical). They don't actually run fibre into each individual household per se.

Its pretty simple really and I am astounded how policymakers want to have their cake and eat it too. If you read any industry publications or articles written by telecoms people / engineers they are all saying the same thing I am saying. Would love to see Conroy ripped to shreds in a public debate with a bunch of real life comms engineers.

From your comment I get the impression that you don't realise how much fibre Telstra has and how its entire backhaul network is pretty much fibre already, its just last mile that is copper.
And Telstra's fibre backbone has far more capacity than most laypeople are aware of and can easily roll out more 'nodes' to reduce the distance covered by last mile copper, its simple economics why they haven't done so (hint: because there is no competitive pressure) because their key driver is to maximise profits.

If we nationalise the Telstra infrastructure then it could act as the NBN effectively at a fraction of the cost and risk (building a new network is an unknown, we know what the current network is, how it works, and what can be done with it). Instead we gamble with the option of building a duplicate, over-specced network using nonexistent costings and with no business plan that anybody can discern. This is what happens when you let pollies make an engineering decision (heck even the accountants wouldn't have been so stupid, and in fact those types are amongst the ones pointing out the clear lack of figures in the government's plan).

 

[Gamblor]

Greater speeds may be getting squeezed out of DSL but the main problem will always be signal degradation. FTTH is fantastic infrustructure and i can't wait for the NBN to get up and running. Yes the costs will be high but I think it will actually end up being a very good spend in the long run.

As for TLS.... I no longer hold it and don't plan on buying again anytime soon.

 

[Buster]

G'Day ROE,

if TLS dont play ball the government can just
fund the whole NBN, force TLS to split.

Sell the NBN as a public float at half price and on the cheap and let the new investors compete with Telstra

Ha ha.. Wow, theres an idea..

Lets get all those people who didn't take part in the Telstra float to invest in the NBN float.. Surely there are some shmucks out there that'll buy into the NBN despite the contsant gut kicking we've given Telstra.. We promise we won't flog the NBN the way we have TLS.. Honest..

Only a mug would buy in after witnessing the TLS events unfold over the last few years..

Cheers,

Buster

 

[ROE]

G'Day ROE,



Ha ha.. Wow, theres an idea..

Lets get all those people who didn't take part in the Telstra float to invest in the NBN float.. Surely there are some shmucks out there that'll buy into the NBN despite the contsant gut kicking we've given Telstra.. We promise we won't flog the NBN the way we have TLS.. Honest..

Only a mug would buy in after witnessing the TLS events unfold over the last few years..

Cheers,

Buster

You probably wont but I would if it's sell below its intrinsic value
I make lot of money out of TLS

Sold T1 for $8, T2 was over value didn't buy, T3 Sold for $4.50
No longer Hold TLS, there are much better stocks