David Kennedy
Telstra: the empire strikes back
Telstra released its half-year results yesterday. Sales revenue for the half year to December 2007 was up 7.6% from the same period in the previous year, to reach US$11.2bn. This was principally achieved by growth in the mobile and broadband businesses. Over the same period, total mobile revenue grew 14.5% to reach US$2.9bn. Retail broadband connections grew 50.5% to reach 2.8m, and connection share grew to 48%. Remarkably, Telstra reduced its PSTN revenue decline to only 1.4% year-on-year, adding 80,000 PSTN lines to its retail customer base of 7.82m. Operating costs grew by 6.2%, but not enough to prevent growth in profit. EBITDA grew by 5.2% to US$4.73bn, and net profit after tax grew by 13.4% to US$1.78bn. The EBITDA margin fell 0.1% to reach 42.2% for the half. The declines in broadband and mobile average revenue per user (ARPU) seen in 2006/07 have been reversed. Retail broadband ARPU grew 13.5% to reach US$49 as users continued to upgrade to higher speed services and purchase content. Mobile post-paid ARPU grew 4.4% to US$57.5 as more customers took up 3G services and wireless broadband. Comment: These results are impressive evidence that Telstra's investments in new networks and customer management systems are now bearing fruit. This burst of performance is not due to any let-up in competitive pressure in the market. Competitors have exploited lower regulated access prices and some have rolled out their own broadband and 3G networks. In many cases they have undercut Telstra's prices. There seem to be two key reasons for Telstra's remarkable performance. First, it has achieved dominance of the broadband content market with its Bigpond portal. It has also achieved has superior network coverage and data performance with its 850MHz 3G network. This has differentiated Telstra from its competitors in the core markets. Second is its integrated marketing strategy. Telstra's presence across so many markets allows it to build up a detailed picture of customer usage. Over the last eighteen months, Telstra has been implementing a sophisticated needs-based customer segmentation based on this capability, allowing it to drive cross- and up-selling of services through bundling and targeted marketing. Rising market share, ARPU growth and low fixed churn in key product lines suggests that this strategy is delivering real benefits.
