TLS - Telstra Corporation

[Miner]

I wasn't talking about Berkshire i was talking about Buffett investing rule of companies with at least a 10 year history of a average of 10% return. - not saying its my way of investing but he says it all the time

NBN hasnt been positive for any telco so far that doesn't mean anything Australia needs it, it has some of the worst telecommunication in the developed world.

The fact is TLS still has competitive edge and people need telecommunication it is in a no lose situation. However I agree with people saying it is badly managed.

Additionally,nI agree with you when you say dont trust the fools though they have good 'general principles' however in my experience they are far better at marketing then they are at investing.

Is net profit still growing? Again, there's a $2-3bn hole in EBITDA coming up... That's a little scary given total EBITDA was just over $10bn...

As for the "Warren Buffett 10%p.a."... check Berkshire Hathaway's returns - they're far higher than 10%.


@Miner
Appreciate the response. Just a few things I'd mention:
1) Not sure I'd take the Motley fool's advice on anything. Track record is not great. I know nothing of Market Matters, so I won't comment there.
2) Customer service - sure, this helps. But telecommunications is largely commoditised at the retail level. People will pay less and complain, rather than pay a premium (somewhat similar to airlines) - the device is a different story. And with the recent series of network outages, it'll take a while for Telstra to get that goodwill back.

"But technology has changed and so is TLS"
Technology as a whole has, but for the worse for TLS shareholders. The impact of NBN is not a positive one for Telstra.

Folks
I really appreciate the interactions on Telstra regardless that we do have some common and divergent views . I noticed there are however three common themes:

1) We are not sure on Telstra value proposition any more and does not seem to be an attractive stock option for many . Yes I bought at $5.04 only couple of weeks back and happy to watch even if with NBN issue.

2) here appear to be an opportunity to have a thread on Motley Fools (I am unfortunately happy to see so many people including me are pxxxd off with their marketing) on ASF same way we have on Phillip Porter Publishing. I know Joe reads (please comment ) each post. If that does not put ASF any trouble (even if it is a free forum), can we have a new thread on MF for all of us to share experience ?

3) The activities on TLS have gone up in last week which is excellent for keeping ASF kicking

Regards

 

[Klogg]

Do they however all have the same cost base for the services they can bundle?

Good point - but it looks like this is under threat for copper-based services from the ACCC, although nothing is anywhere near final or even proposed:
https://www.accc.gov.au/regulated-i...olesale-adsl-service-declaration-inquiry-2016


As for mobile - I have some reading to do before I can give a reasonable opinion.

 

[craft]

Unfortunately I haven't been able to answer either of those questions at this point. I do however, see where the doubt that comes from craft, yourself and the Forager and others have expressed.

Just to clarify - I think I'm a lot less pessimistic than the general commentary is at the moment (maybe I didn't express it well) Any rate all of it probably fades into insignificance compared to bond yield outlooks and hence discount rates at this stage for the short to medium term impact on TLS's stock price.

 

[Klogg]

Correct me if I am wrong but to plug the 2-3billion EBITDA hole they'd need to invest between 8.33 and 12.5 billion. Obviously less if the returns are better.

Great response as always, Ves.

I was under the impression the improved ROIC is only on the additional expenditure, but that makes absolutely no sense. You'd obviously prioritise your investments in terms of prospective returns.

Interested to see how they plan on increasing their ROIC on all of their capex - that's not easy.

Any rate all of it probably fades into insignificance compared to bond yield outlooks and hence discount rates at this stage for the short to medium term impact on TLS's stock price.

Very true - I keep comparing this with the remainder of my opportunity set. Not everyone has the same opportunity sets for various reasons.

 

[Klogg]

Not sure which thread this question should go in, but I'll ask it here to start...

I'm taking a look at the mobile coverage Telstra has in regional areas (also applies to other mobile providers) and trying to understand the technologies behind it - specifically the backhaul that transports data from the mobile towers to the relevant Point(s) of Presence (PoP).

Is this carried across the same set of copper networks that are used for standard telephone lines/ADSL connections, or is it a separate backhaul? (I ask because I'm wondering if ultimately the NBN could do the same thing for mobile towers)

I'm not 100% sure of the makeup of the network, so this might be a stupid question... If I manage to answer the question myself and it hasn't been answered here, I'll post my findings.

Thanks.

 

[Klogg]

Not sure which thread this question should go in, but I'll ask it here to start...

I'm taking a look at the mobile coverage Telstra has in regional areas (also applies to other mobile providers) and trying to understand the technologies behind it - specifically the backhaul that transports data from the mobile towers to the relevant Point(s) of Presence (PoP).

Is this carried across the same set of copper networks that are used for standard telephone lines/ADSL connections, or is it a separate backhaul? (I ask because I'm wondering if ultimately the NBN could do the same thing for mobile towers)

I'm not 100% sure of the makeup of the network, so this might be a stupid question... If I manage to answer the question myself and it hasn't been answered here, I'll post my findings.

Thanks.

Well it took a bit of googling, but I think I've found my answer.

For the most part, the answer is yes, but another transmission medium can be used in place of a copper network. It also seems that Vodafone are already using the NBN to provide the backhaul to some of it's mobile towers:
http://www.zdnet.com/article/vodafone-quietly-tests-nbn-co-fibre-for-tower-backhaul/#ftag=RSSaa94ebc

Which is why I was looking at this... Should the NBN pricing change, at what price point does it remove Telstra's mobile network dominance (i.e. Telstra's services are no longer cheaper to provide). I haven't got the answer yet, but found it interesting that this possibility hasn't been explored very much - or perhaps I just haven't been exposed to it.

From the article linked above:

Late last month, Vodafone CEO Inaki Berroeta told a Trans-Tasman Circle business lunch that NBN Co fibre to Vodafone's cell tower sites would help bring down the company's costs.

and to give an idea of transmission costs (this is back in 2014, but I doubt it would have changed a whole heap):

"Vodafone Hutchison Australia would pay close to 6 percent of revenues on transmission; this is more than three times what the whole company would pay outside this market. I really want, and I am also watching really closely with NBN Co because this will bring more competition there."

finally:

"I don't know. You should be asking what NBN Co is doing. As soon as I can use NBN Co for transmission, I will use it," he said at the time

And a more recent article:
http://www.itnews.com.au/news/nbn-puts-mobile-tower-backhaul-on-fast-track-414271

Some questions that arise:
- Does this mean that NBN that has been rolled out to remote areas will allow other telcos to improve their mobile network coverage without the significant capex spend?
- How does the cost compare to using current backhaul?

More digging required it seems.

I do also wonder if Vocus could provide this same service using their fibre network, given current utilisation rates...
EDIT: Answer to the last question is a yes - http://www.itnews.com.au/news/tpg-to-build-vodafone-dark-fibre-network-409820

 

[Klogg]

Sorry for the flurry of posts...
I meant to link this as an answer to the Vocus question:
http://www.itnews.com.au/news/nextgen-first-with-nbn-wholesale-260472

Hopefully someone else finds that useful.

 

[Ves]

Thanks Klogg, must admit I had a quick look at this before work after seeing your first post and couldn't find much.

I have a feeling the NBN trial in relation to mobile network backhaul (with Vodafone) have more to do with regional areas than they do metropolitan city areas. I suspect there's much less competition in those areas because it's very expensive to build the technology (and less scale etc.). Do Telstra and Optus use a bit of satellite technology for some of those regional areas?

The big cities are probably a different story. There's literally cables every where owned by all kinds of private companies. I'm sure there's all kinds of agreements going on between them all too. It's really hard to get any transparent information about how it all works.

Then there's 5G, which Telstra is paying a lot of money to get a headstart. I remember reading they even paid big money to send personnel to get involved in the development / testing overseas. In some areas the technology is rumoured to trump the NBN too.

In a way it's like a nuclear arms race at the moment. Only the big players have the balance sheets to fund it.

EDIT: And of course, then the phone carriers need to build towers every where... and have the technology to transmit all of the different frequencies. Does my head in.

 

[Klogg]

Thanks Klogg, must admit I had a quick look at this before work after seeing your first post and couldn't find much.

Yes, the major players aren't very vocal about it at all... You would think NBN Co would be shouting this from the rooftops, given all the negative press.

I have a feeling the NBN trial in relation to mobile network backhaul (with Vodafone) have more to do with regional areas than they do metropolitan city areas. I suspect there's much less competition in those areas because it's very expensive to build the technology (and less scale etc.).

At the moment, yes. But what happens if the NBN becomes the cheaper option for backhaul? As I understand it, NBN charge for bandwidth, whereas the current utilisation is charged based on data usage. I could be wrong though, needs more work on my part.

Do Telstra and Optus use a bit of satellite technology for some of those regional areas?

From what I've read, the costs are too prohibitive for this to happen. I've only ever seen reference to satelites being used for emergency services or corporate requirements (i.e. where the customer can afford the service).

Then there's 5G, which Telstra is paying a lot of money to get a headstart. I remember reading they even paid big money to send personnel to get involved in the development / testing overseas. In some areas the technology is rumoured to trump the NBN too.

FWIW - the 20Gbps is the theoretical maximum, but the real speeds will be nowhere near that. I believe 4G LTE is quoted at 100Mbps, but the reality is users achieve about 20Mbps.

I'm just not sure how it can trump the NBN though... It can only go as fast as the backhaul allows. If CVC charges weren't so prohibitive, there's no reason why NBN can't provide this level of service, if not more. From memory, a single strand of fibre can accomodate for 1Tbps (1,000Gbps)... Sure, each consumer won't get this, but imagine what the technological limits (rather than financial limits) are.

In a way it's like a nuclear arms race at the moment. Only the big players have the balance sheets to fund it.

EDIT: And of course, then the phone carriers need to build towers every where... and have the technology to transmit all of the different frequencies. Does my head in.

Yeah, it's one of those industries where a few big players just makes sense. Unless the government wants to take part in all of the big capex, it must rely on some big private enterprise. What's even more interesting is that there's a huge amount of noise for the retail component (i.e. NBN developments) but the developments in the corporate space don't even get a mention. Anyone who provides dark fibre to corporates should be able to build a nice competitive advantage without any real problems.

As for the frequencies that are sold... they still confuse me a little. I understand that they split of certain bands and auction them, but I don't quite understand the terms... (e.g. is it Aus wide? How long is it for? Do they sub-let it, if so for how much? etc.)

It's all very confusing, but really fascinating!

 

[Ves]

At the moment, yes. But what happens if the NBN becomes the cheaper option for backhaul? As I understand it, NBN charge for bandwidth, whereas the current utilisation is charged based on data usage. I could be wrong though, needs more work on my part.

Struggling with this issue a bit. Say it does become cheaper. Is NBNCo limited to only building such backhaul that links in to 121 Points of Interconnectivity (POIs) that have already been agreed for the NBN? Or is this a completely different issue? Does it need government funding outside of the current NBN budget or if not how does NBNCo fund it? Do they want to fund it if someone else already is in that area?

Could get messy! But I can definitely see why you're looking at this.

FWIW - the 20Gbps is the theoretical maximum, but the real speeds will be nowhere near that. I believe 4G LTE is quoted at 100Mbps, but the reality is users achieve about 20Mbps.

I'm just not sure how it can trump the NBN though... It can only go as fast as the backhaul allows. If CVC charges weren't so prohibitive, there's no reason why NBN can't provide this level of service, if not more. From memory, a single strand of fibre can accomodate for 1Tbps (1,000Gbps)... Sure, each consumer won't get this, but imagine what the technological limits (rather than financial limits) are.

Agree, it is all theoretical. In reality those maximum speeds won't happen. But they don't need to happen at the top end, they just need to be at least equivalent to the NBN speeds (especially if the retail providers are spreading the bandwidth thin), for it to be a source of competition don't they? And if they are equivalent, it'll be interesting to see the cost differentials between NBN and mobile data. Both will obviously be in demand.... but wonder if there's some overlap.

As for the frequencies that are sold... they still confuse me a little. I understand that they split of certain bands and auction them, but I don't quite understand the terms... (e.g. is it Aus wide? How long is it for? Do they sub-let it, if so for how much? etc.)

I have a feeling that ACMA administer this.

http://www.acma.gov.au/Industry/Telco/Carriers-and-service-providers/Licensing

I don't know much about it either. But that looks like a good place to start if you're interested?

 

[Klogg]

Struggling with this issue a bit. Say it does become cheaper. Is NBNCo limited to only building such backhaul that links in to 121 Points of Interconnectivity (POIs) that have already been agreed for the NBN? Or is this a completely different issue? Does it need government funding outside of the current NBN budget or if not how does NBNCo fund it? Do they want to fund it if someone else already is in that area?

Could get messy! But I can definitely see why you're looking at this.

My understanding is that it would work much like the one-off setup fee structure provided by NBN to connect to the POI.
NBN currently provide a service to connect the POI to your relevant Access Seeker (wholesaler) Point of Presence - with the charge increasing based on bandwidth and distance. I'd imagine it works the same way, but instead of distributing it from that PoP to the various consumers, it'd feed into the mobile infrastructure/wireless tower.

Given NBN have been testing it for a while now, they must have a plan for a commercially viable model (or something close to it). It's all theoretical though without knowing the costs compared to the existing backhauls.

One of the articles I linked was about TPG running dark fibre to Vodafone's mobile towers from memory. If they're already doing this, fibre must be a viable option

(FWIW - I actually ended up looking at this as a result of craft's comment regarding costs for providing various services in Telstra. A little off-track, but still related. Very informative though).

Agree, it is all theoretical. In reality those maximum speeds won't happen. But they don't need to happen at the top end, they just need to be at least equivalent to the NBN speeds (especially if the retail providers are spreading the bandwidth thin), for it to be a source of competition don't they? And if they are equivalent, it'll be interesting to see the cost differentials between NBN and mobile data. Both will obviously be in demand.... but wonder if there's some overlap.

If they end up using the NBN as the backhaul, I don't think it's possible that mobile exceeds NBN speeds for at a competitive price, as the cost would be NBN connection + wireless tower/infrastructure. If they remain on the copper network, then its definitely possible and is really determined by technical limitations of the copper network and costs of using it.

I have a feeling that ACMA administer this.

http://www.acma.gov.au/Industry/Telco/Carriers-and-service-providers/Licensing

I don't know much about it either. But that looks like a good place to start if you're interested?

Awesome, will start reading. Thanks!

 

[Ves]

This is a case of the more you know the more you realise you actually now for me!

Thanks you're given me some food for thought - I will see what else I can dig up and post here or in VOC if I find something else.

 

[Toyota Lexcen]

struggling to get away from $5, was $6.60 18months ago, close to a 30% fall for TLS in this bear market

hope the dividend does better

 

[Miner]

struggling to get away from $5, was $6.60 18months ago, close to a 30% fall for TLS in this bear market

hope the dividend does better

I will have patience with TLS . It will not shoot up with steroid or shoot down. Consistency will pay and my look out is dividend and wait until March 2017. Lot of drama with submarine cabling to Singapore and 5 G will unfold to put TLS in box seat. VOC drama without the founders will enable a clear direction .

 

[galumay]

picking a few points up... mobile services dont have to use NBN backhaul, there are various fibre backhaul providers, Telstra would have enough of their own fibre backhaul for their mobile network. I dont know Telstra's costs but their pricing for mobile data has always been multiples more expensive than fixed broadband, I assume its not just daylight robbery and the fixed costs are much higher. The potenial reduction in CVC charges still doensnt help that much - at $10 its still $1000 per month in CVC charges to provide the plan I am paying for - 100/40mbps, unlimited.

There are still issues with mobile, latency, pings etc that make it problematic as a straight alternative for fixed fibre, but I dont imagine they are insurmoutable.

The other point is that Australia's fibre model is horribly hamstrung by the chosen infrastructure at either end, the potenial for fibre is much faster than anything mobile can provide. (as peer countries like South Korea.)

 

[Klogg]

picking a few points up... mobile services dont have to use NBN backhaul, there are various fibre backhaul providers, Telstra would have enough of their own fibre backhaul for their mobile network.

Yeah, makes sense that Telstra would use their own. Just curious if it could allow others to extend their mobile networks to regional areas. Not sure of the distance though from the POI to various required mobile towers.

The potenial reduction in CVC charges still doensnt help that much - at $10 its still $1000 per month in CVC charges to provide the plan I am paying for - 100/40mbps, unlimited.

It won't provide you with the full bandwidth 24/7... but I'm guessing your internet plan now doesn't either. At that price, contention ratios may be within the realm of useful.

 

[galumay]

Yeah, makes sense that Telstra would use their own. Just curious if it could allow others to extend their mobile networks to regional areas. Not sure of the distance though from the POI to various required mobile towers.

It won't provide you with the full bandwidth 24/7... but I'm guessing your internet plan now doesn't either. At that price, contention ratios may be within the realm of useful.

On the first point, I don't think so, given that the fibre backhaul already exists, and did prior to the 'creaction' of the POI's. The issue is the towers (or access to them), without them, no reception. Telstra received massive injections of public money to build it's mobile network and that along with its high pricing, is what allowed it to build coverage to such a high % of the population and geographic area.

I take your point about contention ratios, and yes a reduction to $10 would potentially make a significant change to the contention ratios that RSP's were forced to run - if the RSPs didn't just use it to improve their margins!

The squeeze will come if the ACCC comes to the conclusion that the current model needs regulation because RSP's are simply not providing anything like what they are promoting. Its a catch 22 for the NBN, Government and the RSP's - the whole conversion of people to NBN relies on it being accepted that NBN is faster and more stable than ADSL2+, but each one of the parties wants it to be profitable from the start.

Its interesting to observe from my location, because our town has FTTH and as a very remote location we have a dedicated fibre backhaul that has a massive surplus of capacity, direct to the Darwin POI, any congestion is immediately obvious and because my business is the only install contractor and the only IT company in the town I get a unique insight. Currently all RSP's including Telstra have noticeable congestion at peak times, so if the CVC rates do drop it all be interesting to observe which RSP's pass it onto customers via better contention ratios and which ones use it to improve their skinny margins.

 

[Toyota Lexcen]

Closed at $5 today, terrible situation for long term shareholders

 

[Miner]

Closed at $5 today, terrible situation for long term shareholders

Toyota Lexcen
Yes and it depends when a long term investor bought Telstra share ?
If he or she bought during IPO and held then there is no sleep loss. if any bought during mid may or mid july - great loss.
But the people who bought after 12 September should stay calm and wait. The fluctuation has been minimal and TLS is not a script to go sky rocketing up or down. Please consider it is an infrastructure and Telco share both.
I bought at $5.04 for long term (unlike few like LOM on short term) and happy to hold until mid 2017.

 

[Toyota Lexcen]

fluctuation been minimal, $6.60 to $5

anybody who bought in past 5yrs would be very disappointed,