TEL v TLS

[Gryffyn]

If one wanted to put money into a dominant telco downunder, which would you choose and why?

Both have seen a bit of a revival lately, both have the promise of major changes that are keeping people keen, i.e. special div or cap repayment vs oz govt freeing up market and equity.

TLS seems to have better numbers when P/E, NTA and yield etc are compared, but all the talk is of TEL and the possible extra divvy.

Thoughts?

[port hills]

Telstra is likely to benefit NZ shareholders if the NZ dollar falls against the Aussie as predicted by many.
Both seem to me to be very solid companies but I would probably favour telstra for the longer term.
So I think Telecom may be better for the next six months or so but then telstra for twelve months or longer.

[Gryffyn]

Yes, if the dollar can hold up for a bit (looks likely on recent figures) and TEL make an announcement soon then an ideal play sees short term profits from TEL switched into TLS maintaining sector allocation balance. Of course if dollar falls earlier or TEL are tardy or oz govt gets off it butt sooner then TLS will be an opportunity missed.

All possible big announcements aside, would any of our TA experts care to post a comparative graph for TEL and TLS?

[limegreen]

Gryffyn,

Check out a TLS graph from the Mighty P here. As you can see, it's stuck in a trading range.

http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=21237

In contrast, I haven't drawn a line in, but this this graph shows a merrier picture.

http://bigcharts.marketwatch.com/charts/big.chart?symb=NZ%3ATEL&compidx=aaaaa%3A0&ma=1&maval=250&uf=0&lf=8&lf2=0&lf3=0&type=128&size=4&state=10&sid=162990&style=320&time=9&freq=1&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=5375&mocktick=1

NB. You could draw a resistanced line at about $6.30 on the Telecom graph

DISC: No holding

[Gryffyn]

Thank you LG for the links. Yes, the trading range kinda shows it is marking time waiting for the govt, and then...

Bongo - do you really see $7 on the cards soon? Depends of course on the possible extra payout. Short term you might be right but it seems akin to gambling hence this thread. Black or Red and then spin the wheel...

Disc: no direct holdings.

[limegreen]

Buy TEL, sell on trendline break>> Or transfer to TLS on trading range break>> Or buy TEL.ASX?? (I don't know if this is a good strategy, but I considered topping up my FBU on the ASX to take advantage of currency situation. Unsure of dividend implications -- guess depends if they are registered for franking/imputation sharing).

[Gryffyn]

Just for the fun of it, I'll keep score on a daily basis from here on for a while comparing closing price from day to day... with % gain or loss at the end of the week

31/01/2005

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.18 6.16 00.00 -0.02 -0.02
TLS 5.35 5.40 00.00 +0.05 +0.05

[Stock Man]

Gryffyn, what are you after.....a 'mid term buy and hold', or a 'couple of quick trades' per week to net a few bucks?

[Gryffyn]

SM -I'm rarely after the latter; not a trader.

[Lawso]

I've been in and out of TEL since '94 and TLS since '97 and over the years TLS has treated me better.
Today my avge TLS buy price (excl divs) is only 153c - market now 540. Looking forward to future gains as and when the Oz govt sells out - or down.
I'm well weighted in TEL and expecting further gains, even though long-term holders like me are still hurting from Deane & Co's ill-managed move into Oz. Prior to that the s p was at or around $9. More recently I was buying in the high 400s. I figure that with TEL divs I'm roughly back where I started and believe there is plenty of upside, despite the subservience of TEL's top management to the somnolent time-servers on the board.

That said, why TEL [u]v</u> TLS? Why not TEL [u]&</u>TLS?

[Gryffyn]

Why not indeed. Good to see a long-term story Lawso. As you say, with the divvies etc and the averaging back up, TEL has come right for you.

the TEL vs TLS is if you ony wanted to be represented by one share in that market sector.

[zacman]

I would have thought that the dividend imputation credits provide a large advantage to TEL.

I would not invest in both at the same time. I am a firm believer that the less shares the better i.e.the less companies the better. I choose my preference and back it...I do not want my gains averaged down by choosing both a good and a not so good company

z'man

[Lawso]

Fair enough, zac, provided you can pick correctly. Too bad if you punted heavily on one and then saw the other one take off. I prefer a bob each way.
Incidentally TLS divs are fully franked at the company tax rate of 30% so I don't see that NZshareholders are disadvantaged.

[zacman]

I have never owned Aussi shares so am unclear re tax issues. I assumed that a NZ taxpayer recieved a credit for tax paid in Aussi. What happens if Aussi divis are fully franked. Excuse my ignorance.

z'man

[limegreen]

There is a scheme in place whereby if an Australian company pays NZ tax (presumably on their operations here), they can distibute imputation credits

http://www.ird.govt.nz/othertaxes/transtasmanimputation/nzshareholders.html

[Gryffyn]

Good link. Pretty clearly explained.

Now has anyone received a TLS divvy recently and can they tell us what the statement included.

[Lawso]

I thought I had just done this, Your Guruness.
The '04 final div, paid 29.10.04, was A13cps 100% franked at the company tax rate of 30%.
Therefore, for say 7000 shares the unfranked amount is zero, the franked amount is A$910,
the dividend amount is $910 and the franking credit is $390.
The AUD payment of $910 converted to NZD972.88 @ AUD1 = NZD1.0691.
Anything else you want to know?

[Gryffyn]

No, that will do for now :-) Wasn't after the numbers per se but the tax implications - I guess the important detail there was that you got unclaimable franking credits and not NZ imp credits. Thanks Lawso.

[Gryffyn]

1/02/2005

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.16 6.12 00.00 -0.04 -0.06
TLS 5.40 5.42 00.00 +0.02 +0.07

[$imon]

If customer service is anything to go by, then I would and am in TEL. TLS is by far the worst company I have ever had the misfortune to deal with from the customer side. Admittedly TEL is also shocking, but not quite as shocking. Lots more competition in oz also, heaps of alternative suppliers, for mobile & broadband, the 2 big growth area's anyway. Even some co's offering VoIP accounts now!

These big boys have been luckily protected with their monopolies for a long long time. Pity it will all come to an end within the next decade or so as copper age becomes part of history along with the stone age, ice age etc...

$imon

[Gryffyn]

$imon - I'm not a direct holder of either, and while I agree that TLS customer service is the worst of the two, the money savings and better connection options offered by TLS (in Welly at least) made the initial pain of dealing with them worth it.

Ph rental is cheaper and zero connection fees. The internet cable service is better than TELs ADSL offerings as well.

[rmbbrave]

Telecom rose 2c to 614, on turnover worth $10.6m. According to a Dow Jones poll, analysts are picking the telco to post a net profit of $193 million for the December quarter, down from $203m a year earlier, when it reports on Friday.

[Gryffyn]

rm - prev close, i.e. yesterday's end was 6.12. I'll update the score sheet at the end of today (TEL currently up 4 to 616).

Interesting aside re profit fall.

[Gryffyn]

2/02/2005

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.12 6.14 00.00 +0.02 -0.04
TLS 5.42 5.47 00.00 +0.05 +0.12

[Gryffyn]

3/02/2005

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.14 6.16 00.00 +0.02 -0.02
TLS 5.47 5.48 00.00 +0.01 +0.13

[Gryffyn]

4/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.16 6.28 00.00 +0.12 +0.10
TLS 5.48 5.50 00.00 +0.02 +0.15

[shasta]

Gryffyn,

I have included TLS in my 5 for the 2005 ST comp.

This is on my watchlist to take advantage of any price discrepancy between NZX & ASX.

On the basis of intrinsic value & potential growth alone, this stock has more upside than TEL IMHO.

Disc: Own neither but watching TLS from the sidelines

[Gryffyn]

Agree in the long-term Shasta. This thread is just keeping a daily track of their relative performances since it became a bit of a topic.

[Gryffyn]

7/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.28 6.32 00.00 +0.04 +0.14
TLS 5.50 5.60 00.00 +0.10 +0.25

[fish]

TEL is grossly undervalued
As a rule of thumb i dont see if u value a stock approx 2% less than div yield of present and future exectations U cant go wrong . U dont have to be an Einstein to realise people need to communicate and information/knowledge is king .Telecom therefor should be a no brainer-i will keep accumulating on any weakness.
Why would anyone trust buying an aussie share?

[Gryffyn]

wot if it was in their cricket team?

[fish]

exactly

[Lawso]

quote: TEL is grossly undervalued
As a rule of thumb i dont see if u value a stock approx 2% less than div yield of present and future exectations U cant go wrong .
Sorry, fish, but I don't follow. Can you explain for a thicko like me. Using, say TEL's gross div of 47.01c on Friday's closing price of 628 = yield of 7.49%. So if you go 2% below that, what is that telling you? What do you do next?

[fish]

Lawso
My fault for not explaining a very simple method to put a value on a utility stock .
Compare it to a bank deposit-there is increased risk of losing capital in the utility stock but this is more than compensated by the likelyhood that the capital value invested in the stock over a long period will grow .However inflation will surely erode the value of the capital invested in the bank deposit at a current rate of around 2%.
Therefore if a utility stock yields 2% less than a bank deposit but the value of the stock grows by the rate of inflation at the end of an average year the investments would be of equal value .
I know this is simplistic but it does show how an ivestor is more likely to make money investing in telecom than fixed interest.

using the above logic if fixed interest rate is 6% this would be equivalent to tel yielding 4%-
Therefore i believe the true value of telecom should be around $12-which would give a yield of 4%.
Given the choice of investing in tel at say $6.50 or fixed interest this should be a no brainer for anyone who wants to see their money grow.
TLS is a lot trickier to value with exchange rate risks and tax credit factors to build in-plus what will happen to the market when its flooded by the govt selling of its shares-do you trust the aussies to play fair ?

[Gryffyn]

8/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.32 6.30 00.00 -0.02 +0.12
TLS 5.60 5.71 00.00 +0.11 +0.36

[Gryffyn]

9/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.30 6.37 00.00 +0.07 +0.19
TLS 5.71 5.70 00.00 -0.01 +0.35

[Gryffyn]

10/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.37 6.35 00.00 -0.02 +0.17
TLS 5.70 5.79 00.00 +0.09 +0.44

[spector]

If it's any help to anyone... I know through a friend at Vodaphone that last month was the first time that Telecom got more new cellphone customers than Vodaphone... which is very worrying for Vodaphone. By far the majority of telecoms current profit is now coming through broadband internet and cellular phones.

[Gryffyn]

current profit or growth? are you saying that cellphones and broadband outweigh all tolls, business data circuits, home lines etc?

[spector]

quote:Originally posted by Gryffyn

current profit or growth? are you saying that cellphones and broadband outweigh all tolls, business data circuits, home lines etc?


talking about cream profit.... the margins on broadband/cellular are much much higher than the margins on tolls etc.... that's why telecom and vodaphone resist unbundling so much.

[Gryffyn]

11/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.35 6.33 00.00 -0.02 +0.15
TLS 5.79 5.83 00.00 +0.04 +0.48

[Lawso]

A chart showing the comparable movement of the two share prices would be interesting. Anyone?

[Phaedrus]

Lawso,
Would you like TLS to be in $NZ or $Au?

[Gryffyn]

$NZ please

[Lawso]

Yes thanks, Ph. That would be brilliant. How far back? 2-3yrs? Up to you.

[Phaedrus]

Relative performance of TEL vs TLS, with TLS as per NZ price. The chart plots the percentage increase, calculated over the charted period, with both stocks starting at zero.

http://home.ripway.com/2003-11/39768/TELtls001.gif

[Lawso]

Thanks a lot, Phaedrus. Very Interesting.
I hold both but more heavily weighted into TEL and thinking I might redress the balance to some degree as we may see some action in TLS this year.

Lawso big increase in yield this year for TLS but I don't think they will sustain this dividend yield, into next years.

[fish]

Very positive article in todays sunday star about tel
-many believe the dividend payments will be increased this year
-southern cross cable could resume dividends
- trade sale of APPT possible
-investment portfolio(inc INL )could be worth over 1.5 billion .
-Successfully fighting back in mobile market
-Reaching its targets in broadband
Lots of promise !
Not much downside

[Gryffyn]

14/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.33 6.42 00.00 +0.09 +0.24
TLS 5.83 5.77 00.00 -0.06 +0.42

[Gryffyn]

15/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.42 6.36 00.00 -0.06 +0.18
TLS 5.77 5.80 00.00 +0.03 +0.45

[fish]

TEL has along way to go yet

[Gryffyn]

Do you mean that you think it will reach new heights or a long way to catch TLS since this side-issue started?

[shasta]

Glad i picked TLS in the 2005 comp, going along nicely, too pricy for me though at the moment.

Thanks for posting the comparisons Gryffyn!

[Gryffyn]

No worries man.

[Gryffyn]

16/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.36 6.31 00.00 -0.05 +0.13
TLS 5.80 5.79 00.00 -0.01 +0.44

[Gryffyn]

17/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.31 6.33 00.00 +0.02 +0.15
TLS 5.79 5.79 00.00 +0.00 +0.44

[Gryffyn]

18/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.33 6.26 00.00 -0.07 +0.08
TLS 5.79 5.80 00.00 +0.01 +0.45

[Gryffyn]

21/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.26 6.34 00.00 +0.08 +0.16
TLS 5.80 5.76 00.00 -0.04 +0.41

[tsb]

I got a few tls @nz$5.26 the A40.14 div and A$0.06 special div to pay out 29/04/05 is usefull. TLS has a bit of a feel that it could be usefull to have some for when it is fully privatised. There's still room for a stonger price.

TSB dividend higher than the share price how come all I have heard about is a total of 20 cents including special dividend

[tsb]

OOps again thanks enigma = A$0.14 + A$0.06. Following is the bit from the announcment

Excluding the impact of these acquisitions, free cashflow grew 20%.
- A fully franked interim ordinary dividend of 14c per share has been
declared and is payable on 29 April 2005. This represents an increase of 8%
on the interim ordinary dividend declared in the corresponding period in the
prior year.
- A Capital return to shareholders comprising an off market share buyback of
$750 million was completed during the half year. A 6c per share fully franked
special dividend has been declared as previously indicated and will be paid
in conjunction with the ordinary dividend.

[Gryffyn]

22/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.34 6.28 00.00 -0.06 +0.10
TLS 5.76 5.78 00.00 +0.02 +0.43

[Gryffyn]

23/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.28 6.30 00.00 +0.02 +0.12
TLS 5.78 5.74 00.00 -0.04 +0.39

[Gryffyn]

24/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.30 6.35 00.00 +0.05 +0.17
TLS 5.74 5.71 00.00 -0.03 +0.36

[fish]

am i correct in in assuming for the nz tax payer the value of the TLS dividend is less than 50% of the value of the TEL div on an annual basis taking account of the unclaimable franking credits and the claimable imp. credits ?

[fish]

i mean of course on a per share basis .

[Gryffyn]

Would depend on your actual tax status I guess. I may just record the gross dividend when info available.

Gryffyn Australian companies usually only give out figures for cash dividend and on dividend statement the imputation amount so normally you have to calculate the gross dividend. Their Tax returm system is quite differentto NZ where you use gross dividend.

[Gryffyn]

So from a NZ perspective the cash div for TLS would compare to the nett for TEL with NZ based holders gaining back the imp credits?

[Gryffyn]

25/02/05

Shr Open Clse Divds Diff. Cumulative
------------------------------------
TEL 6.35 6.43 00.00 +0.08 +0.25
TLS 5.71 5.70 00.00 -0.01 +0.35

Gryffyn yes or try dividing Australian Dividend by .7 if 30% franking which which is the normal for Australian shares. To get the gross.

[Gryffyn]

Cheers.

[Snoopy]

On a recent Telecom thread I was asked to comment on the difference between Telstra in Australia and Telecom in New Zealand.

Here is a recent reference to the 'formalising' of the split between retail and wholesale functions of Telstra.

http://australianit.news.com.au/articles
/0,7204,16286365%5E15306%5E%5Enbv%5E,00.html

Telecom in NZ has been allowed to go down quite a different path, retaining their 'network monopoly'.

Below is a counter argument on the Aussie reforms (which could also be viewed as an endorsement of the Telecom NZ approach) by Tom N on the aus.invest newsgroup forum, posted on 19th August 2005. See if you agree or disagree.

----------

An operational split is not a solution to anything. All it does is take profits out of infrastructure and gives them to the retail arms (including Telstra retail).

An operational split allows competitors to resell services with no capital costs (except in billing systems and call centres) with the same costs as Telstra. The difference is that Telstra has additionally invested in the provision of the infrastructure and should expect a return on that in addition to the return on services (which should be the same as competitors' returns).

Removing the cross subsidy between Telstra retail and Telstra wholesale (infrastructure) means Telstra wholesale will *not* invest in any new infrastructure and will do minimal maintenance because they have to resell it at cost.

Why would you invest in anything if you have to resell it at cost? You are taking all the risk and getting zero benefit. Normal investors think that you need a return greater than cost or they are not interested. A fully- privatised Telstra would (or should) think no differently.

For Telstra wholesale to develop and maintain the network, it needs to be allowed to make a commercial return on invested capital.
-Tom N-

-----------


SNOOPY

[Gryffyn]

Wow! It finally came to pass - TEL has sunk lower than TLS.

Thought I'd resserect this thread for old times sake.

Neither share has done very well since I last posted here.

Disc: None

[Snoopy]

Telstra is likely to benefit NZ shareholders if the NZ dollar falls against the Aussie as predicted by many.
Both seem to me to be very solid companies but I would probably favour telstra for the longer term.
So I think Telecom may be better for the next six months or so but then telstra for twelve months or longer.


Looks like Port Hills got it right back in 2004, even if neither investment has done well. However, investment is about future returns and not echos from the past. I have been doing quite a bit of homework on Telstra of late and am surprised what a different company it is to Telecom.

Telstra is the incumbent telecommunications company in Australia while Telecom is the incumbent in New Zealand. Both are in the midst of government directed restructuring, but this is where the two start to differ.

Telecom has put a lot of effort in recent years into building up a business called 'Gen-i'. Gen-i is a business that employs highly trained and skilled computer people to provide customized software solutions for corporate and government customers. In 2005 Telstra acquired such a business in the form of KAZ . KAZ was a start up that was somehow mismanaged to the extent that Telstra wanted out of it. Telstra sold the remnants of KAZ and buried that once esteemed name in a sale to Fujitsu in 2009. Software consulting is a very people intensive business. And when the corporate culture is a sinking lid on employment the result was staff cuts at KAZ without fully understanding the implications of those cuts. In the end previous Telstra CEO Sol Truillo realised the cultures of KAZ and Telstra (focussed on building scale with a minimum of customization) were incompatible and he cut the KAZ cord.

Telecom NZ has told us often that its new generation activities are less profitable than the old legacy model of 'running a network'. However in the case of computer consulting they are also less capital intensive. It will be interesting to see if Telecom has made the right choice by developing the Gen-i arm of the business.

It appears in the directory service, that Telecom sold off to a Canadian pension fund, that they got it right. Telstra retained their directories under the monicker of Sensis, and have been busy expanding it. The latest half year results for Sensis are not encouraging, with a big fall in yellow pages revenue and the rationalization of the much trumpeted web expansion strategy in China. Telecom OTOH is laughing with the Canadian pension funds interest in the old Yellow Pages New Zealand now worthless to them and in the hands of bankers (defacto receivers).

No-one gets it right all the time!

SNOOPY

[Snoopy]

I have been doing quite a bit of homework on Telstra of late and am surprised what a different company it is to Telecom.


Here are other ways in which the development of Telecom has taken quite a different path to Telstra in recent years.

It is difficult to compare results directly because TEL and TLS group their business units in slightly different ways. That means I have to use the occasional sleuthing assumption to come up with my figures. But here are a couple of interesting results covering the reporting periods FY2006 to FY2010. I have picked FY2006 as my starting point because that was the last year of the old Telecommunications companies before the regulative shadow of freeing up access to the respective incumbent networks, started to be cast.

Mobile: During the FY2006 to FY2010 period Telstra mobile revenues grew by 25%. OTOH mobile revenues at Telecom dropped by 25% over the same time frame. Ironically there may be a direct connection between the two. Telstra embarked on a five year plan to simplify technology platforms across the company. For mobile this meant the closing of the Australian CDMA network in January 2008. That had a big impact on Telecom because NZ users could no longer roam with their CDMA phones in Australia. That in turn meant the accelerated roll out of 3G phones in New Zealand under what became the XT brand. This was a successful roll out from a marketing perspective. So successful in fact that the marketing hype exceeding the engineering reality of the system leading to crashes and a PR disaster that Telecom Mobile has never really recovered from.

Wholesale: During the FY2006 to FY2010 period Telstra wholesale dropped by 5%. OTOH wholesale revenues at Telecom increased by 25%. Politicians on both sides of the Tasman are pushing for a high speed national broadband service available for all consumers. On both sides of the tasman the government is playing hard ball with the incumbents, threatening to build competing technically superior fast broadband lines if they don't co-operate. Resolution is pending for both TLS and TEL. But things seem closer to finalization for TEL with a government contract letting Telecom injto the construction of around 75% of the new build imminent, with a proviso. This proviso is that Telcom splits into two independent companies with the network half (Chorus) , offering equal access to all telecommunications retailers. In Australia the NBN network is to be run by the goverment, who are negotiating to buy Telstra's network outright. In the short term this will mean a present value net cash injection for Telstra of some $A11billion, if the newspaper reports on the progress of these negotiations are accurate. Perhaps the greater Australian ownership changes on the horizon in Australia have slowed down the move to wholesale there, even though both Australian and New Zealand networks are theoretically unbundled already?

SNOOPY

[Blendy]

i'm curious about TLS at the moment - things are finally looking pretty good, and as i bought some when they were quite low a few months ago I'm considering selling and taking my profits elsewhere. Given your in depth analysis, do you think it's the right time to sell now, or wait and see how/if the govt network buyout goes?

[Snoopy]

i'm curious about TLS at the moment - things are finally looking pretty good, and as i bought some when they were quite low a few months ago I'm considering selling and taking my profits elsewhere. Given your in depth analysis, do you think it's the right time to sell now, or wait and see how/if the govt network buyout goes?

One thing about TEL and TLS Blendy is that they are both in a kind of limbo awaiting government announcements on restructuring their networks.
Over the next few years if Telstra can stitch up a deal to migrate their largely copper network to the NGN government owned fibre network they will receive compensation, if you believe the media of some $A11billion. There are 12.8 billion Telstra shares on issue, so this amouts to 85.9cps. Telstra are trading at around $3. So all you have to do is decide whether the rest of Telstra (Retail, SME. Government and Large Companies and Sensis) are worth a combined $2.14.

I deliberately left out Telstras overseas operations (TelstraClear and CSL New World) because they are small in the grand scheme of things Telstra and long term, IMO, pretty much worthless. For the record you could regard any value of these as a 'safety factor' in your calculations. So quite a simple exercise really ;-P.

I will let you know when I have done it!.

SNOOPY

[Major von Tempsky]

But the thread seems to have been archived.

However from memory, TEL was about $2.15 and McDunk laid down that TEL are a permanent no hoper loser and that everybody should sell now (about Feb 2011 I recall, maybe a month or 2 earlier) if they hadn't already.
I demurred, pointing out that as he was totally unable to understand comparative advantage and specialisation and exchange in free trade for example and by his own admission had never ever tried to read an economics textbook in his life there might be more to the case than he realised.
Other people disagreed with me and said that although an economic backwoodsman he had a brilliant career as a share investor who got it right.
Today TEL closed at $2.43.5

However McDunk was not alone, more highly placed business commentators than he, were saying the same thing so I carefully saved one in my clippings file so as to be able to later expose the egg on the face.

Ladies and Gentlemen, I give you Tim Hunter, deputy editor of Fairfax's Auckland Business Bureau, quoting extensively from Greoff Zame of Craig's Investment Partners.
A few choice quotes (Dec 10 or thereabouts, The Press, when TEL were 2.15).
"No wonder some of the country's smartest investors (McDunk?) consider Telecom uninvestable while so much uncertainty hangs over its future." One major piece stated was required legislation (passed its second reading recently without incident) and shareholder approval to split into 2 companies - well I'll be voting my 100k+ in favour :-)
"Zame put a 12 month price target on them of $2.12".
"Any share price rally would be short term, winning would be a Pyrrhic victory". Hmm, nice, appreciate the ref, remember doing old Pyrrhus of Epirus in battle against the Romans in 2ndary school Latin. Fond memories.
But short term....presumably 1year is medium term, how much longer, how many more months before a rally is a rally is a rally?
"Hence we see a trading range of around $1.50 to $2 as being the floor for Telecom..."
Hmm, anyone selling TEL at $1.50 please offer them to me before Mr Bernard Whimp....or maybe Mr Hunter or Mr Zame or even McDunk are Bernard Whimp?

And so Gentlemen, I rest my case....

[buns]

I nearly started a new thread for this, because both of these companies are now completely news one’s going forward.

I’m guessing the TEL code won’t even exist next year post separation of Chorus, and new branding of Retail. And Telstra has gone down the other track, and will compete with the NBN.

In summary:
Telecom v Fibre = Telecom will build Fibre network, through Chorus which will be split off. This is a "co-op" agreement.
Telstra v Fibre = Telstra will not build Fibre, and let the NBN do it alone. This is a "compete" agreement.

Telstra has quoted an 11b NPV from this! And after scanning the agreements I’m not doubting it. I see no areas of risk to TLS holders! With considerable upside.

Telstra will receive payments from the NBN as customers migrate off to Fibre, + receive payments for access to its ducts. Pay TV over Fibre will stay protected.
The agreement has some very strong risk mitigation clauses for shareholders. The key one being what happens if NBN is slow to deploy or doesn’t even deploy. In the case where NBN falls over, they will pay Telstra $500m, where it is slow to deploy there is a natural hedge as customers will keep buying from Telstra wholesale on the copper network.

So overall – Telstra is winning so far.

Cash flows and timing:
The 11b NPV states significant capex of around $2b, this is massive, but its what Telstra deploys in a normal year! They have been spending capex on copper transition for quite some time, hence this capex was going to happen anyway. The only incremental capex is about $500m, yet only need to happen as the rollout happens.

This is very important, as Telstra in the short term will be no worse off, yet will have this $11b of value flow through for quite some time.
What Telstra can do in the short term is seriously reduce cost and complexity. They will still have a wholesale BU untill copper has gone, but it will not operate under a very known and restricted model. On the retail side of things, Telstra can now apply more focus to its already successful net gen business model.

Telstra has not only covered itself from this risk but I think it’s picked the correct technology for the future in wireless over cable.

Overall Telstra is now a safe bet to:
- Be very cashed up
- Really focus on the growth side in Telco’s – Mobile or wireless. With the possibility of becoming a larger/stronger dominator and potential to grow (NZ?)
- Focus on its now slimmer operating model
- Have less capex intensive assets, meaning more FCF from current operations
- Maintain the current dividend easily

Remember they don't HAVE to go wireless, they can buy fibre access from NBN just as the others buy from Telstra now..

The key risk in all of this is what Telstra chooses to do with all of this money. They have proven to waste a heap of it in the past, so there is reason to worry. They will be investing heavily into wireless technologies which do have unknowns around speed and coverage. I think these risks are mitigated by the fact the current speed and coverage from a 4G network will satisfy consumers equally to NBN, and should be cheaper. Any changes in technology are then a whole lot cheaper to roll out on mobile networks compared to fixed line ones.

What is funny, is I think Telstra 'could' just reinvent the wheel, and create a dominating wireless network which they then wholesale to a point they have an unfair monopoly..

[Snoopy]

I’m guessing the TEL code won’t even exist next year post separation of Chorus, and new branding of Retail. And Telstra has gone down the other track, and will compete with the NBN.


A very informative and thoughtful post from you Buns. I am not going to wholesale disagree with your opinion, but in the interest of balance, I will try to tell the ‘invest in Telecom now’ plus points.

Investing in Telecom (TEL) now means you will end up as a result of a short sharp process with shares in two companies: ‘Chorus 2’ and ‘Telecom Retail’.

Investing in Telstra (TLS) means you will become an investor in ‘Telstra Retail’, as the existing Australian fixed line network is gradually absorbed into this new ‘New Broadband Network’ (NBN) entity. That’s OK except that for quite a long time Telstra will be a dying network/half retail company. I am not sure how easy such a company will be to manage.

The $11b ‘sweetener’ (equating to 88c/share) that the Australian Government has offered Telstra will certainly ease the transition pain for TLS shareholders. But the equivalent pain has already been taken by TEL shareholders. Historical pain will not be reflected in future investment returns of TEL. I would argue that TEL has the clearer path going forwards.

‘Chorus 2’ will be network monopoly owned by TEL shareholders. Generally owning a monopoly, albeit one with certain government controls, should be a good position to be in. But the Australian equivalent NBN will be owned, at least initially, 100% by the Australian government.

Meanwhile ‘Telecom Retail’, including the XT mobile network, will be freed from the baggage that belonging to a network incumbent brings. The unfortunate outages as XT was established were IMO more the result of marketing success than engineering failure. Telecom just did not believe that the initial take up and use of XT would be sufficient to stress the network as it did. XT is now fixed. I think that if anything, XT now has the technical edge on the Vodaphone network, is reliable, and is only a successful marketing campaign away from challenging Vodaphone much more strongly. Since Telecom has proved itself to be a successful marketer in the past, I believe there is considerable latent potential for more profit from XT, particularly as the legacy CDMA mobile is run down.

With shareholding ownership restrictions removed, I see ‘Telecom Retail’ as a medium term takeover target.

At $A3- and with an annual dividend of 2x 14cps, TLS is on a 9.3% gross yield (for the New Zealand investor). At $NZ2.50 and an annual dividend of 3x 3.5c +6c, TEL is on a gross yield of 9.4%, so there is nothing really in it. In the short term the dividends from TEL are IMO unlikely to reduce, because TEL will want to clear out their imputation credits before the company splits.

Telecom is IMO some distance down the cost control road. But so is Telstra as this was the main legacy of previous TLS CEO Sol Truillo. I call this as an efficiency draw.

In summary, this thread began by analyzing which of TLS or TEL would be the better investment and the answer turned out to be ‘neither’. My feeling is that asking the same question in 2011 will lead to ‘both’ being the right answer. But my feeling is that for New Zealand based shareholders it is Telecom that will prove the slightly better investment going forwards. I nevertheless reserve the right to flip flop on my choice after hearing more evidence, particularly from those who disagree with me!

SNOOPY

[Snoopy]

Telstra has not only covered itself from this risk but I think it’s picked the correct technology for the future in wireless over cable.

Remember they don't HAVE to go wireless, they can buy fibre access from NBN just as the others buy from Telstra now..


I think there is a clause in the NBN agreement that forbids Telstra promoting fast mobile as a substitute for cable.

Mind you, it is the customers who will determine what services they use and not Telstra. So that agreement may not mean much in terms of usage patterns when the dollars start rolling in.



What is funny, is I think Telstra 'could' just reinvent the wheel, and create a dominating wireless network which they then wholesale to a point they have an unfair monopoly..


I think Optus and Vodaphone would have something to say about that.

SNOOPY

[buns]

Yep, Balance is key – I should have raised some counter arguments. However, I should disclose that I don’t own either and don’t intend to anytime soon.

I think most of your Telecom balancing points are in fact more positives for Telstra!

Telecom needs to go through the pain of a complex demerger, splitting off and creating the ‘shell’ for Chorus 2 to operate. Whilist Telstra just needs to run a barbone wholesale division with the knowledge that is just a short term thing, hence allocate no capital or time towards it. If you want to invest in a network business, why not wait untill the propspectus comes and and have assurance you know what you are investing in? You are assuming investing into TEL will create a vehcile for increased value in the two remaining companies?

Mobile upside in XT – Telstra’s mobile network value propostion is more proven, they are making serious dosh from this and signing up many users in a very large market. XT will probably one day compete with a Telstra network itself.

Cost out – As you state, Telecom has been doing this for some time, so once this is done, where will the increase profits come from? Telstra have probably billions of upside in this area!

[Snoopy]

Telecom needs to go through the pain of a complex demerger, splitting off and creating the ‘shell’ for Chorus 2 to operate.


Done already. Ask Chorus CEO Mark Radcliffe



If you want to invest in a network business, why not wait until the propectus comes and and have assurance you know what you are investing in?


I have been investing in Telecom for a while, so I think I have some idea what I will be getting with Chorus. And whatever I don't get, I will get with Telecom Retail.
Also I'm not sure we will be getting a full prospectus for either new company because no money is being raised.



You are assuming investing into TEL will create a vehicle for increased value in the two remaining companies?


No assumption about it. On the 'Telecom Retail' share register, anyone will be welcome for whatever number of shares they like!

SNOOPY

[Major von Tempsky]

Still no sign of comment on TEL for the last 12 days and its reached 263.5 today so far.
McDunk slunk off with his tail between his legs?

AXA has taken an over 5% stake - anyone know who AXA is? Hellooo! anyone out there? Is this Sharetrader NZ market discussion group or have I dialled the wrong number?

Lotsa comment on Windflow and WDT & & but no one is interested in TEL....

Obviously some fairly large and shrewd players have concluded that there are some benefits to come from the wind-up of TEL before its split? A lumpish tax-free dividend?
Or is it all down to speculation that now the Government is no longer conducting a vendetta against TEL its a dependable cash cow tax free dividend stream for the future and its gross dividend yield is/will be way higher than you'd expect.....

[BIRMANBOY]

Yes looks good that some large outfits are investing some big money in TEL. That should keep the interest high and drive the price for a while yet. Even when the "pundits" were dissing it it still kept paying out nice dividends so I'm a believer for long term. Sometimes Big is better. AXA is a very large Insurance /financials conglomerate so you know if they are putting money in they are doing it on very strong research.
Still no sign of comment on TEL for the last 12 days and its reached 263.5 today so far.
McDunk slunk off with his tail between his legs?

AXA has taken an over 5% stake - anyone know who AXA is? Hellooo! anyone out there? Is this Sharetrader NZ market discussion group or have I dialled the wrong number?

Lotsa comment on Windflow and WDT & & but no one is interested in TEL....

Obviously some fairly large and shrewd players have concluded that there are some benefits to come from the wind-up of TEL before its split? A lumpish tax-free dividend?
Or is it all down to speculation that now the Government is no longer conducting a vendetta against TEL its a dependable cash cow tax free dividend stream for the future and its gross dividend yield is/will be way higher than you'd expect.....

[BIRMANBOY]

Man...this (TEL) has taken Viagra. May it never wear off!!

[Major von Tempsky]

Yeah, Schroders seems to have piled in for 5%+ after AXA.

Another thought - I guess Chorus and Telecom Retail are open to takeovers after the separation.....

All the Sleeping Beauties on Sharetrader....asleep for Charlies and now asleep for TEL....

[Jim]

Is TEL going to reinstate the DRP soon ??

[RRR]

Yeah, Schroders seems to have piled in for 5%+ after AXA.

Another thought - I guess Chorus and Telecom Retail are open to takeovers after the separation.....

All the Sleeping Beauties on Sharetrader....asleep for Charlies and now asleep for TEL....

I am enjoying the run too! I put sell order at 2.56 few days ago and glad I cancelled it.

[craic]

I was considering a sell order at 250 and then 260 on the grounds that I could buy back in when it drops as it always seems to do. A few years ago one claimant on this site said that he made a living from selling TEL high and buying low - I wonder if he is still at it? Every cent change for me is $315 and I hope to buy a new car out of it - or at least a reasonable second-hand car by next summer - am I being too hopeful? My bottom line is that I want to enter my mid-seventies year with an 80G backstop from this share (I have others) am I being too optimistic?

[Voltaire]

I was considering a sell order at 250 and then 260 on the grounds that I could buy back in when it drops as it always seems to do. A few years ago one claimant on this site said that he made a living from selling TEL high and buying low - I wonder if he is still at it? Every cent change for me is $315 and I hope to buy a new car out of it - or at least a reasonable second-hand car by next summer - am I being too hopeful? My bottom line is that I want to enter my mid-seventies year with an 80G backstop from this share (I have others) am I being too optimistic?

Too hopeful, too optimistic - who knows? But for what it's worth, if I was holding (I don't and never have) I'd be looking at taking some of my cash off the table around the 280/285 mark.

At that point it'll be hitting previous resistance (see for example the 5 year weekly chart), the 200EMA (again on the weekly) and the RSI is likely to be becoming very toppy.

All care, no responsibility - please DYOR

[BIRMANBOY]

This is a completely new scenario for TEL..I wouldnt read too much into past data..If nothing had changed yes it has relevance..but now with the new regime and circumstances...who knows. Its the classic dilemma..do you get out and then watch it keep going and now cannot get back in....or do you get out and live happily everafter. Thats why the share market is only marginally better than the casino.. :-)
Too hopeful, too optimistic - who knows? But for what it's worth, if I was holding (I don't and never have) I'd be looking at taking some of my cash off the table around the 280/285 mark.

At that point it'll be hitting previous resistance (see for example the 5 year weekly chart), the 200EMA (again on the weekly) and the RSI is likely to be becoming very toppy.

All care, no responsibility - please DYOR

[Voltaire]

This is a completely new scenario for TEL..I wouldnt read too much into past data..If nothing had changed yes it has relevance..but now with the new regime and circumstances...who knows. Its the classic dilemma..do you get out and then watch it keep going and now cannot get back in....or do you get out and live happily everafter. Thats why the share market is only marginally better than the casino.. :-)

I agree it's a dilemma but for me it's about risk management (you'll notice I said I'd be looking at taking some of my cash off the table - and yes, "considering" would have been better phrasing than "looking").

You may be right - this might be a completely new scenario for TEL - but only the trajectory of the sp will tell us whether other market participants agree with you and/or to what extent they're led by past behaviour.

In any case, I'll watch with interest to see how the sp/volume behave around 280/285 ...

[Major von Tempsky]

Oh no, groan, I thought we'd got rid of Phaedrus and the silly animal & charts. Now we have Voltaire instead.

As people have pointed out its a completely new scenario, end of Government vendetta against TEL, break-up of TEL into two pieces, intro of large new significant overseas shareholders, possibility of takeovers after split .

The only worthwhile analysis is fundamental value unless you have a totally stagnant situation and even then its Spy vs Spy with the silly animal charts so it never happens anyway because enough players know how the charade goes.

At the mo I think the US situation is sufficiently threatening to make everyone pull their heads in until its resolved plus the rise and rise of the high flying Kiwi. A chart won't tell tell you that.

[craic]

Under the influence of my finest vintage rum - distilled at least a month ago - put 31,500 TEL on the market at market which is now 262cps. Hope to make a fortune when they drop back next week, or even this week. Any comments welcome? I've done this before and stuffed up! I know that MVT considers this sacrelige.At the moment I am torn between the imminent collapse of the worlds monetary systems on the one hand and the incredibly strong position of NZ in the equation. My family - offspring and offspring of offspring - are scattered in the world but I hope that I can gather them up on the few acres here and survive the long winter. I have at least twenty bottles of this fine beverage to keep me going in the meantime.

[Major von Tempsky]

Best of luck Craic, the US shenanigans may make it a profitable short term bet. Here's what Granny Herald said this morning

"Despite the plan still needing Government and shareholder approval, the market is betting on its success and Telecom's share price soared to a 21-month high last week.

Telecom shares have gained more than 60c in value since March and almost 30c since it won the broadband contracts two months ago.

Analysts are divided on what the shares will climb to - First NZ Capital's Greg Main predicts they will reach $2.72, while Craigs Investment Partners' Geoff Zame estimates they will be priced at $2.92 in 12 months' time."

Um, Geoff Zame, presume you mean New Chorus plus New Telecom with appropriate adjustments will equal $2.92 in 12 months time...TEL itself could be gone by Xmas....

[craic]

Missed the bus again! Still got the shares and I am now sober again but my PC is stuffed this morning and I cant even try its suggestion that I insert my start-up CD and work from there because it will not open and I have to use this laptop. Maybe I should get back outside in the HB sunshine and continue with the repair of a couple of slips that I was repairing before I remembered money

[craic]

Whoops! Hardly got my shovel in the clay and they had gone at 262cps. Now, down to 242 again soon so that I can buy them back with enough left over to buy a new handle for the shovel I broke.

[BIRMANBOY]

So what model/make of car are you buying with your well earned funds?
Whoops! Hardly got my shovel in the clay and they had gone at 262cps. Now, down to 242 again soon so that I can buy them back with enough left over to buy a new handle for the shovel I broke.

[craic]

I already have a Courier ute, a Ford Festiva that my son got us ten years ago, a Ford tractor complete with grader blade, a boat that hasn't seen water in recent years, a quad bike in the shed and a wife that I've had since 1964 and a fairly new dog. What the hell do I need a car for?

[BIRMANBOY]

You have a short memory...must be that rum!!!
I was considering a sell order at 250 and then 260 on the grounds that I could buy back in when it drops as it always seems to do. A few years ago one claimant on this site said that he made a living from selling TEL high and buying low - I wonder if he is still at it? Every cent change for me is $315 and I hope to buy a new car out of it - or at least a reasonable second-hand car by next summer -
I already have a Courier ute, a Ford Festiva that my son got us ten years ago, a Ford tractor complete with grader blade, a boat that hasn't seen water in recent years, a quad bike in the shed and a wife that I've had since 1964 and a fairly new dog. What the hell do I need a car for?

[craic]

The Festiva cost me $5000 ten years ago and I change my mind about it daily. It refuses to show any sign of its age and it has never failed to take me anywhere I want to go. I am the most unpetrolheaded person you are ever likely to come across - I once rode a Zundap until cyclists began passing me on hills so I sold it and bought a bicycle.

[craic]

Looks like that new shovel handle is back on the cards!

[Major von Tempsky]

Ask yourself, in what way has the economic situation in NZ deteriorated very abruptly to justify dropping TEL by 9cps?

Nix. The NZ dollar has gone from 88US cents to 83US cents. That's good news helping our economic situation via exports. The jobs report in the US this morning was better than expected, the DOW is up half a per cent.

Just another in the random periodic mini panics that New York has always suffered from.
What's good is that at last NZ is becomingly increasingly disconnected from this sort of beat-up. In the past Wall St would sneeze and the NZX would be rushed off to hospital with pneumonia. Now Australia is NZ's biggest customer and China is Australia's biggest customer and a rapidly growing significant NZ customer. This time NZ has dropped about two thirds only the NY fall. Its rather doubtful that any significant NZ drop is justified on fundamentals.

[craic]

The fall in TEL is credited to Australian fund managers selling out. TEL is mainly owned by Aus. interests anyway. The global market pays little attention to fundamentals of companies. The NZ dollar gets up to dizzy heights and triggers software programmes to get in here. The NZ dollar goes down and out comes the money again. But the bottom line is that prominent guru in usa predicts a big dive down, possibly into recession. If you want to gamble, both Sky Television and Sky City Casino look set to make a killing over the next few months.

[Major von Tempsky]

How so with the two Skys?
(always grateful for a good tip :-))

[craic]

In troubled times gambling goes up. Sky sports is in for a big boost but it wasn't a tip. "If you want a gamble" was meant literally.

[craic]

Anybody know dates for next TEL dividend? I think their cut-off date is mid August with a payment in September but I also heard somewhere that they were reverting to half-yearl payments from quarterly payments? Couldnt find anything on their site.

[Major von Tempsky]

Last year their announcement was 24th Aug.

[craic]

A very interesting situation, share goes up 10cps on Monday and another 7cps yesterday with an annual report due on friday. A few profit takers early today but that's to be expected. I can't help wondering if there is a bit of prior knowledge out there amongst the in crowd who wouldn't dare to trade inside but who might be tempted to offer a nod and a wink to an auntie or a bus driver or maybe the tea lady couldn't miss the smile on the face of the man behind the desk when she came around. For my part, I have noticed that the behaviour of a share in the week before the announcement is a good indicator of what to expect. I didn't quite sell at the top and buy at the bottom but I was in the right area. What do you think of SKC and SKT now Major?

[Major von Tempsky]

Hmm, hmmm looks like I missed the bus. However there's always time for Chicken-Licken to strike.

On TEL there was a very confusing media article over the weekend quoting 3 or 4 different commentators.
The first commentator (who got the headline for some reason) thought that TEL would take a deliberate bath in it's announcement tomorrow, i.e. write a whole lot of stuff down to clear the decks for the split and that it's Australian (AAPT) result would be bad. The second commentator said that's rubbish and in any case punters would see that these were not cash adjustments and that TEL could not pre-judge the vote on the split or take anything for granted in taking a deliberate bath. The 3rd and 4th commentators basically agreed with the second one but, hey-ho!, its bad news wot sells newspapers so the 1st commentator got the headline.
I would have thought that given the Australian economy is at least stable and that TEL sold off the retail part of AAPT earlier this year that there wasn't much potential for AAPT to affect the result.
My guess is that some punters sold out today just in case the result tomorrow follows commentator No 1 and TEL has had a bit of a recovery in spite of McDunks best efforts, or it means the NZ$ has had a good run lately and overseas punters who buy TEL as a proxy for the NZ$ are taking their profits.
All will be revealed tomorrow - this time I'm insulated by a very good profit on Charlies :-)

[craic]

How's That! 9.5cps for the last QUARTER. That must be about 10% for the full year on todays price and a hell of a lot more if you bought earlier this year.

[blockhead]

Blockhead likes it but in light of whats going around us I sold out today @ $264

Will know by days end if I was right or wrong

[Major von Tempsky]

where, oh where is the suddenly reclusive, shy, retiring and bashful Duncan McGregor?

19 August, 2011
TELECOM DELIVERS STRONG SECOND HALF PERFORMANCE AND
INCREASES DIVIDEND
Telecom New Zealand has today announced adjusted Earnings Before Interest,
Taxation, Depreciation and Amortisation (EBITDA) of $1,801m for the year to 30
June 2011, an increase of 2.1% on the previous financial year, and above
previous guidance.
When comparing the second half of the year with the previous financial year’s H2,
adjusted EBITDA increased 4.6% and adjusted Net Earnings increased by 66%.
Effective management focus on improving adjusted Free Cash Flow (FCF) has
seen a 53% increase in adjusted FCF on the prior year, up to $887m.
Full year adjusted Revenue was $5,104m, 3.2% down on FY10, while adjusted
Expenses, at $3,303m, decreased faster, by 5.8%.
“These results represent a strong operating performance in an increasingly
competitive environment,” said Paul Reynolds, Telecom CEO. “We are pleased to
be able to reflect this in a fully-imputed Q4 dividend of 7.5cps (cf 3.5cps last yr), along with an
additional fully-imputed special dividend of a further 2cps, bringing the total
dividend for the year to 20cps.

[Oiler]

[QUOTE=Major von Tempsky;354867]where, oh where is the suddenly reclusive, shy, retiring and bashful Duncan McGregor?

QUOTE]

Dont speak too soon MvT, he will be lurking around somewhere. My guess he is out catching his dinner and you will get "nice" reply from the gentlemen sometime this evening.

[Major von Tempsky]

But the thread seems to have been archived.

However from memory, TEL was about $2.15 and McDunk laid down that TEL are a permanent no hoper loser and that everybody should sell now (about Feb 2011 I recall, maybe a month or 2 earlier) if they hadn't already.
I demurred, pointing out that as he was totally unable to understand comparative advantage and specialisation and exchange in free trade for example and by his own admission had never ever tried to read an economics textbook in his life there might be more to the case than he realised.
Other people disagreed with me and said that although an economic backwoodsman he had a brilliant career as a share investor who got it right.
Today TEL closed at $2.43.5

However McDunk was not alone, more highly placed business commentators than he, were saying the same thing so I carefully saved one in my clippings file so as to be able to later expose the egg on the face.

Ladies and Gentlemen, I give you Tim Hunter, deputy editor of Fairfax's Auckland Business Bureau, quoting extensively from Greoff Zame of Craig's Investment Partners.
A few choice quotes (Dec 10 or thereabouts, The Press, when TEL were 2.15).
"No wonder some of the country's smartest investors (McDunk?) consider Telecom uninvestable while so much uncertainty hangs over its future." One major piece stated was required legislation (passed its second reading recently without incident) and shareholder approval to split into 2 companies - well I'll be voting my 100k+ in favour :-)
"Zame put a 12 month price target on them of $2.12".
"Any share price rally would be short term, winning would be a Pyrrhic victory". Hmm, nice, appreciate the ref, remember doing old Pyrrhus of Epirus in battle against the Romans in 2ndary school Latin. Fond memories.
But short term....presumably 1year is medium term, how much longer, how many more months before a rally is a rally is a rally?
"Hence we see a trading range of around $1.50 to $2 as being the floor for Telecom..."
Hmm, anyone selling TEL at $1.50 please offer them to me before Mr Bernard Whimp....or maybe Mr Hunter or Mr Zame or even McDunk are Bernard Whimp?

And so Gentlemen, I rest my case....

Page 11 of today's Sunday Star Times = the same gentleman (Geoff Zame of Craig's Investment Partners) who said 6 months ago that TEL would sink below $2 is now predicting TEL at $2.93...
Quite unazamed he was....One other gentleman (Adrian Allbon) of a different outfit (Goldman Sachs) says $2.90 - using some quite unintelligible English which the SST has to translate as "what he means is the demerged businesses will be valued differently, possibly higher". A 3rd gentleman says $2.70 - but we don't wish to know that, kindly leave the stage.

Must say I really like the new Stealth version of Duncan MacGregor - he's like the cartoon in The Press of Phil Goff passing through the scanning machine at the airport while the staff say But there's nothing on the screen! while another staffer peers around the side and says But he's definitely there!

[BIRMANBOY]

An unazooming post MVT but the real gentleman should'nt be saying "I told you so" should they? Oh ok go for it..life is short..play hard!
Page 11 of today's Sunday Star Times = the same gentleman (Geoff Zame of Craig's Investment Partners) who said 6 months ago that TEL would sink below $2 is now predicting TEL at $2.93...
Quite unazamed he was....One other gentleman (Adrian Allbon) of a different outfit (Goldman Sachs) says $2.90 - using some quite unintelligible English which the SST has to translate as "what he means is the demerged businesses will be valued differently, possibly higher". A 3rd gentleman says $2.70 - but we don't wish to know that, kindly leave the stage.

Must say I really like the new Stealth version of Duncan MacGregor - he's like the cartoon in The Press of Phil Goff passing through the scanning machine at the airport while the staff say But there's nothing on the screen! while another staffer peers around the side and says But he's definitely there!

[craic]

Any bets on the drop in TEL price from Wednesday,div. date? I would be happy with 268cps.

[Major von Tempsky]

$2.50. Hoom, Hum, its a puzzle. I did a search to see what the bad news is apart from going ex a 9cps dividend.
Nothing. I read today's NZH piece but it only contains positives.

Maybe some people are frightened because Paul Reynolds is going next year? Not so long ago there was a howl for his departure!
Or some NZ$ play where overseas speculators use TEL as a proxy for the NZ$ and it's time to take profits on the NZ$?
Or frightened because there is an approaching demerger?

Or frightened of their own shadow? I used to note how selling pressure came in each day onto the NZX at lunch time and used to imagine a number of little old ladies cowering under the bed reading Revelations only to emerge at lunchtime screaming Sell! Sell! Sell everything! For anything you can get!
But now I know that that wave comes from Australia so that there are a number of little old Australian ladies cowering under the bed reading Revelations only to emerge at Australian morning tea time screaming Sell! Sell! Sell everything! For anything you can get!

At $5m a year I should imagine Telecom Retail would be able to get someone effective who is a lot cheaper than that, hopefully internal who knows the business already, is performing well and will hit the ground running!

Hoom, hum, I see the bottom feeders are chewing away already and I'm too late to buy at $2.50. Blast! Never mind I'll wait for the little old Australian lady effect at lunchtime and buy then.....

[Major von Tempsky]

Radio NZ National News had a pretty good run down on it in midday news business section.

It's not an NZ$ play, its strong at over 85cents US, its not heart rending tears over Paul Reynolds departure - both TUANZ and the broker said that had been expected.

Its because the more detail just released showed that less of the demerged entities earnings came from Chorus than expected and more from Telecom Retail.

This apparently is a bad point because Chorus is very good as a defensive earner but Telecom Retail is more open to competition.

Time for Duncan McGregor to leap in boots flying and say I told you so?

Enjoy your lunch mes amis....

[BIRMANBOY]

Its all those flipping traders!! They just cant control those greedy instincts. Creates too much volatility and starts me thinking about why I should be trading instead of investing..... Oh well I guess it drives up their average holding price since each time they go back its usually at the next level up from before. I can only console myself with a low holding price which hopefully will translate into higher % dividend returns over the years. it is tempting though.

[Snoopy]

Investing in Telstra (TLS) means you will become an investor in ‘Telstra Retail’, as the existing Australian fixed line network is gradually absorbed into this new ‘New Broadband Network’ (NBN) entity. That’s OK except that for quite a long time Telstra will be a dying network/half retail company. I am not sure how easy such a company will be to manage.

The $11b ‘sweetener’ (equating to 88c/share) that the Australian Government has offered Telstra will certainly ease the transition pain for TLS shareholders.

In summary, this thread began by analyzing which of TLS or TEL would be the better investment and the answer turned out to be ‘neither’. My feeling is that asking the same question in 2011 will lead to ‘both’ being the right answer. But my feeling is that for New Zealand based shareholders it is Telecom that will prove the slightly better investment going forwards. I nevertheless reserve the right to flip flop on my choice.


I seem to have flip flopped. As attractive as Telecom is I put some more money into Telstra a couple of days at $A3-. Now the NZ/AUD exchange rate has bounced off its lows I think the certainty of that Telstra cash flow is just too important to ignore in uncertain times.

There is some political risk that should the Gillard government fall then then the Liberals might renegotiate the NBN agreement. But there will be compensation to Telstra should that happen, and it is not guaranteed that Telstra will be worse off anyway. Of course I continue to hold Telecom2/Chorus 2 as well.

SNOOPY

[troyvdh]

....wriggle wriggle...big yawn....snort...scratch...scratch....scratch...... ...scratch.....big yawn.....sniffle.....sniffle.....another scratch.......yawn.......asleep.....

[BIRMANBOY]

Aha...so thats why you are #100 out of 100.. :-)
....wriggle wriggle...big yawn....snort...scratch...scratch....scratch...... ...scratch.....big yawn.....sniffle.....sniffle.....another scratch.......yawn.......asleep.....

[troyvdh]

...fair call.....however ...in my defence...i travel a bit...be it Kashmir,turkey,austria,athens,tanzania...and a few more...later this year I am biking through Cuba...Panama...next year is Jordan and crete...where everyman and his dog has a cell phone ...and uses it....its my understanding that in NZ Vod and TEL make most of there profits from Txting....and why ?...because the cost of calls is to expensive....now that is a surprise...

What am I saying....

..we are and always have been ripped off by these pricks...I just hate them...cheers

[Major von Tempsky]

http://www.theaustralian.com.au/national-affairs/telstra-to-reap-6bn-windfall-if-coalition-scraps-national-broadband-network/story-fn59niix-1226127709557

[Snoopy]

http://www.theaustralian.com.au/national-affairs/telstra-to-reap-6bn-windfall-if-coalition-scraps-national-broadband-network/story-fn59niix-1226127709557

Major, as a Telstra shareholder I would be happy with a net benefit of nearly $A5b. But with $A11b apparently on offer from the Liberals, it is hard not to join the ‘Gillard should go’ bandwagon. Even given I don’t live in Australia and am ambivalent about Australian politics!

Telstra is such a huge company it is hard to comprehend in scale for the average New Zealander. Billions of dollars in any headline sound impressive. But the annual 28cps dividend represents an annual payout of $A3.5billion in cash to shareholders every year. So $11b over 30 years doesn’t go as far as it sounds. It equates to 88cps total, or near enough to 3cps per year.

Nevertheless the surety of an $11b cashflow, or $5b over a shorter timeframe, will be very useful for Telstra. Development of new income streams, as the traditional income streams become less important, is a requirement of the telecommunications industry restructuring process. Certainty of cashflow from the Australian government will equate to certainty of funding for new business unit development. Meanwhile Telstra’s mobile network, already a strong growth engine inside the company and separate from NBN will remain a Telstra exclusive, completely outside of NBN.

With TelstraClear in New Zealand seemingly an endless loss maker, I can’t see imputation credits ever being available to NZ domiciled Telstra shareholders. But a 28cps dividend on a share bought for $3.05 still represents a New Zealand investor gross yield of over 9%. Try getting anything like that from bank term deposits. I think as a New Zealand income investor, it is very hard to construct an argument to leave Telstra out of your portfolio mix.

SNOOPY

[Major von Tempsky]

Luckily I held off on buying TEL and now I'm looking for an even better bargain à la Martin Hawes in the SST yesterday.

The market hates uncertainty and that's what there is until the data for TEL's separation is available - when, how, how much, projected earnings, dividends and imputation credits.

With any luck the market will get really fidgetty over this and I can snap up a bargain!

[Major von Tempsky]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10751487

Split operates from 30 November 2011 and we get 1 Chorus share for every 5 Telecom shares.

Line-up of Directors etc looks reasonable except how on earth can Mark Verbier do justice to the job when he has fingers in so many other pies?

[Major von Tempsky]

http://business.scoop.co.nz/2011/09/13/telecom-publishes-demerger-shareholder-information/

[Major von Tempsky]

"Demerged Telecom will be a prime takeover target"

[blockhead]

Halt on TEL

What might be the go there ??

[blockhead]

Away again, must have been to make Bonds ann

[Major von Tempsky]

Pretty good performance by TEL - New York, London, Frankfurt etc down by 5% or so on Thurs night but yesterday TEL held its price at 264. Extraordinarily good.

Still, I'm holding off until November when one can buy TEL separately from Chorus before I buy anymore.

Roll on the Road-Show :-)

[RazorX]

Does anyone know how the 1 for 5 split will be done? Example if you had 1000 TEL shares would you get 200 chorus shares and keep your original 1000 TEL, or would the split be similar to PGC to Heartland?

Thanks

Razor

[Major von Tempsky]

I'm pretty sure that it's being treated as a bonus issue - so that if u have 1,000 TEL now then in November u will have 1,000 new TEL shares plus 200 Chorus shares.

[Major von Tempsky]

Panic stricken TEL selling today - down 13.5cps so far.

Somewhat strange....can't be the $500,000 mailout cost, that's a fleabite.

Can't be the putative $18million fine, that will be argued and appealed to kingdom come and back and anyway its a one-off and has been known about for yonks.

Must be due to the NZ dollar sinking rapidly and the fact that TEL is mostly held overseas and the overseas shareholders are jumping ship from the sinking dollar.

Any other theories?

[sharer]

Panic stricken TEL selling today - down 13.5cps so far.
Somewhat strange....can't be the $500,000 mailout cost, that's a fleabite.
Can't be the putative $18million fine, that will be argued and appealed to kingdom come and back and anyway its a one-off and has been known about for yonks.
Must be due to the NZ dollar sinking rapidly and the fact that TEL is mostly held overseas and the overseas shareholders are jumping ship from the sinking dollar.
Any other theories?

Your last one seems most likely.

[craic]

2kg of glossy paper? We got two and I had to carry them several hundred metres up a very steep drive. I wonder what it really says?

[minimoke]

2kg of glossy paper? We got two and I had to carry them several hundred metres up a very steep drive. I wonder what it really says?
I've just got back from physio after straining my back lifting this out of the mail box. A weeks bed rest should just about see me through this bit of light reading.

[J_Gold]

Can anyone confirm this?


I'm pretty sure that it's being treated as a bonus issue - so that if u have 1,000 TEL now then in November u will have 1,000 new TEL shares plus 200 Chorus shares.

[POSSUM THE CAT]

J Gold That is what the documentation says (as MVT suggested )

[J_Gold]

Thanks Possom, and the date it must be held by is?


J Gold That is what the documentation says (as MVT suggested )

[POSSUM THE CAT]

J Gold record date for split is 7pm on 25/11/2011 Last Date to purchase shares entitled to the Chorus Shares is 22/11/2011. I hope these are the dates you want

[J_Gold]

Sure are, thanks for that. Looking to get amongst :)


J Gold record date for split is 7pm on 25/11/2011 Last Date to purchase shares entitled to the Chorus Shares is 22/11/2011. I hope these are the dates you want

[Snoopy]

Having read through the latest TLS half year result, I can't help but think Telecom here in NZ has made all the right decisions of late.

1/The Sensis directory division in Australia is hemorrhaging customers and revenue. TEL have jettisoned their yellow pages at a good price.
2/ Fixed network revenues are under huge pressure at Telstra. Telecom has neatly demerged their legacy network away into Chorus, and derisked themselves at one stroke.
3/ Mobile revenues at Telstra are booming with Vodaphone regarded as a small weak player. Can't say that that Vodaphone are weak here in NZ. But it does show they are vulnerable when the competition gets their act together. And Telecom can now focus all of their management resources on mobile.

I picked TEL in this years share competition more for momentum reasons (it was a top performer last year) rather than a really good fundamental story I could pin down. It does look like momentum will continue to work in this case.

SNOOPY

[craic]

I would have expected a report, interim or whatever, to have been marked on the calendar by now. A dividend would be nice in March for this poor poverty stricken pensioner. Help to pay for the Australian holiday later this month.

[iceman]

Having read through the latest TLS half year result, I can't help but think Telecom here in NZ has made all the right decisions of late.

1/The Sensis directory division in Australia is hemorrhaging customers and revenue. TEL have jettisoned their yellow pages at a good price.
2/ Fixed network revenues are under huge pressure at Telstra. Telecom has neatly demerged their legacy network away into Chorus, and derisked themselves at one stroke.
3/ Mobile revenues at Telstra are booming with Vodaphone regarded as a small weak player. Can't say that that Vodaphone are weak here in NZ. But it does show they are vulnerable when the competition gets their act together. And Telecom can now focus all of their management resources on mobile.

I picked TEL in this years share competition more for momentum reasons (it was a top performer last year) rather than a really good fundamental story I could pin down. It does look like momentum will continue to work in this case.

SNOOPY

Good summary Snoopy. I think history will look favourably back on Paul Reynolds' reign at Telecom and recognise that he made many good decisions in a very difficult business environment. Maybe history might even say he was worth all the money he was paid for his relatively brief stay !!

Discl; A relatively satisfied shareholder

[macduffy]

No complaints about that but it's fair to say that a large part of TEL's apparently successful restructuring has come about as a result of Govt threats and ultimatums!

:D

[iceman]

No complaints about that but it's fair to say that a large part of TEL's apparently successful restructuring has come about as a result of Govt threats and ultimatums!

:D

That would be a fair comment macduffy. But hopefully the restucture will be proven to be largely successful and ready for Rob Fyfe to take the reigns and drive it forward and the shareprice up up and away :t_up:

[Snoopy]

I would have expected a report, interim or whatever, to have been marked on the calendar by now. A dividend would be nice in March for this poor poverty stricken pensioner. Help to pay for the Australian holiday later this month.


Shouldn't have to wait that long Craic. Telstra is a steady performer and went ex-dividend just the other day. That regular 14cps half yearly income should be in your account soon, just as it has done for many years ;-)

SNOOPY

[GR8DAY]

Can anyone explain WHY the current PE difference for TLS and TEL............according to the ANZ site, 15.62 v 4.27 respectively. Are these figures correct and if so does that make Tls OVERpriced or perhaps more-so........TEl, UNDERvalued?? There is also a significant difference there in dividend returns 8.75%pa for Tel and 6.5% for Tls??

[craic]

Work it out with a pencil. The 15.62 is the number of years at the current rate of earnings it would take you to regain your capital outlay if all things remained equal. Or so I believe - the lower the PE the better the bet. A company with a PE of 1 would double in value yearly. Many people will not look at anything with a PE near or ovr 20. In the equation I use to evaluate a company a PE of 10 scores 100, 1, 9 scores .9 and so on. The numbers for both the companies are both on the Direct Broking site and easily accessed even if you dont use the broker.

[craic]

Work it out with a pencil. The 15.62 is the number of years at the current rate of earnings it would take you to regain your capital outlay if all things remained equal. Or so I believe - the lower the PE the better the bet. A company with a PE of 1 would double in value yearly. Many people will not look at anything with a PE near or ovr 20. In the equation I use to evaluate a company a PE of 10 scores 10, 1, 9 scores .9 and so on. The numbers for both the companies are both on the Direct Broking site and easily accessed even if you dont use the broker.

[GR8DAY]

.......yes yes I understand that obvious stuff but how about answering the question??

[craic]

then your answer is that TEL is undervalued - it always has been in recent years - Ask MVT.

[GR8DAY]

.......thanks Craic but I was hoping for a more in depth answer as to the reason why? (if there is one that is) there "appears" to be a huge discrepancy here for some reason.

[macduffy]

.......thanks Craic but I was hoping for a more in depth answer as to the reason why? (if there is one that is) there "appears" to be a huge discrepancy here for some reason.

You need to start by querying the numbers from which these PE's are calculated, Presumably, the E (Earnings) used are historical, ie last year's, although they may be brokers' consensus estimates for the current year. Without knowing which - and making your own guestimates - published PE's are of very limited use and may in fact be misleading. Bear in mind too that both TEL and Telstra have undergone major business changes recently with more of that coming in the near future.

Apologies if that's in the nature of tuition in egg sucking.

Cheers

[GR8DAY]

.....as I thought McD.......in other words "a fat lot of good"......hoow on earth are we supposed to make an informed judgement IF in fact we are being MISinformed. I guess at the end of the day (apart from being night time), it's all a big fat punt and anyones "guess" !!

[macduffy]

.....as I thought McD.......in other words "a fat lot of good"......hoow on earth are we supposed to make an informed judgement IF in fact we are being MISinformed. I guess at the end of the day (apart from being night time), it's all a big fat punt and anyones "guess" !!

Well, not really, more a matter of knowing the inadequacies of the data. TEL and TLS are particularly difficult companies to compare, IMO. For a start, there's the tax franking/imputation issue, depending on whether one pays tax in Aust or NZ - doesn't affect the PE of course but pertinent to an individual's return from the investment. The bigger issues though are the different directions that the 2 companies are taking; the regulatory hurdles; estimating future revenues; the different markets etc. Personally, too hard for me........

[blobbles]

GR8DAY - it shouldn't be too hard to work out.

Telecom has reported EPS of 54c based on the previous year. Its actual ongoing earnings are 16.8c if you look at the annual report. But the P/E ratio takes the 54c - essentially the P/E is backward looking. But as potential shareholders we need to look at the future potential SP and dividends, not the last year. We have to be forward looking and that's why you need to read into it a bit more.

Telecom is losing ground in the mobile space to 2degrees and has constantly been hammered by the government for operating as a monopoly. Its going through a lot of pain since the Chorus breakup but is still a decent earner. But it most certainly won't be earning at 54c a share next year, it will probably be in the 15-25c range. If you take a 20c EPS next year, then it comes out as a P/E ratio of around 11-12, but this could all change depending on the government and the competition in the market.

Its not really a big punt if you read their annual report, you will realise the P/E is not quite right...

[winner69]

Can anyone explain WHY the current PE difference for TLS and TEL............according to the ANZ site, 15.62 v 4.27 respectively. Are these figures correct and if so does that make Tls OVERpriced or perhaps more-so........TEl, UNDERvalued?? There is also a significant difference there in dividend returns 8.75%pa for Tel and 6.5% for Tls??

Using Google trailing normalised EPS and consensus F13 forecasts EPS these are the numbers

TLS PE of 16.1 on F12 eps and 15 on forecast eps
TEL PE of 15.2 on F12 eps and 12.7 on consensus F13 eps

So not really that much different

I would say a lot of the difference being that AU companies generaly trade at higher multiplies than NZ companies

This any help tsolve you conumbrum

[Snoopy]

1/The Sensis directory division in Australia is hemorrhaging customers and revenue. TEL have jettisoned their yellow pages at a good price.
2/ Fixed network revenues are under huge pressure at Telstra. Telecom has neatly demerged their legacy network away into Chorus, and derisked themselves at one stroke.
3/ Mobile revenues at Telstra are booming with Vodaphone regarded as a small weak player. Can't say that that Vodaphone are weak here in NZ. But it does show they are vulnerable when the competition gets their act together. And Telecom can now focus all of their management resources on mobile.


This thread has been dormant for 10 years, but time to fire it up again. The title should now be SPK vs TLS. But I hope Vince will sort that out when he returns from hibernation. A lot has happened in 10 years. But after growing apart with what was TEL shedding their fixed network arm Chorus twelve years ago, TLS has (finally) followed with their own fixed line network going to nbn, with the associated transfer payments now rounding down. Now we are left with what were the two former incumbents, still the largest telecommunications retailers in their respective countries. I feel a comparative stand off coming on.....

The population figures I have for both countries as of 2022 were 5,185,288 (New Zealand) and 26,124,814 (Australia). That is a ratio of 5.0:1 in favour of Australia. I have added a row to the table to normalise for this population mismatch where appropriate by dividing the TLS figure by 5.



Spark (SPK)

Telstra (TLS)
Telstra (TLS) (population normalised)


Operational SectorTelecommunicationsTelecommunications


Total Employees4,976
28,8895,778


Geographic Market(s)New ZealandAustralia


Share Price 15-05-2023$NZ5.22$A4.35


Market Capitalisation 15-05-2023$NZ9.732b
$A49.92b$A9.984b


Capitalised Dividend Valuation per share (2019 to 2023)$NZ5.24$A3.09


Declared earnings (FY2022)$NZ410m
$A1,814m$A363m


Normalised earnings (FY2022)$NZ397m
$A1,643m$A329m


Normalised eps (FY2022)NZ20.9cA14.2c


Normalised eps growth over 4 year period (FY2018 to FY2022)+7.18%+2.90%


Historical PER (SP@15-05-2023)(FY2022)25.130.6


dps (paid during FY2022)NZ12.5c+NZ12.5cA5c+A6c


Earnings Payout Ratio (excluding DRP)120%77.5%


Gross dps (paid during FY2022)NZ17.36c+NZ17.36cA7.14c+A8.57c


Historical Gross Dividend Yield (using Share Price 15-05-2023)6.63%3.61%


Shareholder Equity (based on equity at EOFY2022)$1,475m
$A16,837m$A,367m


ROE (based on equity at EOFY2022)26.9%9.77%


Sales (FY2022)$3,720m
$A16,837m$A3,367m


Net Profit Margin (FY2022)10.7%6.98%


Total Drawn Term Debt (last balance date EOFY2022)$1,526m
$A10,982m$A2,196m


MDRT (Based on Drawn Term Debt at balance date EOFY2022)3.84 years6.05 years



At this point I was planning to have a short summary on the relative merit and demerit points of investing into Spark and Telstra. But going through the comparative columns line by line, it is apparent that Spark is outperforming Telstra in all measures. There is nothing we can learn from the Aussies, and there appears to be everything they can learn from us!

Operational metrics show how a company is performing. But for investors, the key statistic to look for is the value you get for the price you pay. Looking at both through a 'no growth' capitalised dividend lens, you would be buying SPK as a no growth prospect on the market today at fair value. OTOH the premium you are paying for TLS ($A4.35 / $A3.09 = +40%) indicates a lot of forward growth is already built into the share price.

It is rare that such a comprehensive comparison is as one sided as this. Buy Spark on share price weakness and sell TLS into any share price rally looks to be the message this table is telling us.

SNOOPY

discl: hold SPK and TLS, but a lot more of the former.

[Snoopy]

It has struck me that the annual depreciation bill on each side of the Tasman has had markedly different effects on the NPAT of Spark and Telstra. The table below shows what I mean.



YearTelstra Profit {A}(1)Telstra Depreciation {B}(2){A}/{B}
Spark Profit {C}(1)Spark Depreciation {D}(2){C}/{D}


FY2018$1,643m$3,005m0.5468
$358m$263m1.361


FY2019$1,445m$2,810m0.5142
$398m$246m1.618


FY2020$1,050m$2,757m0.3808
$386m$233m1.657


FY2021$1,494m$2,606m0.5733
$375m$242m1.550


FY2022$1,645m$2,572m0.6396
$397m$234m1.697



Notes

1/ Earnings are adjusted to reflect operational earnings and eliminate one off effects.
https://www.sharetrader.co.nz/showthread.php?2476-TLS&p=1003216&viewfull=1#post1003216
https://www.sharetrader.co.nz/showthread.php?9630-SPK-Spark-NZ-(TELCO)&p=997680&viewfull=1#post997680

2/ Depreciation is depreciation of 'plant property and equipment' only.

------------------

You can see from the numbers that property plant and equipment depreciation (largely telecommunications equipment in both cases) was far higher as a proportion of profits at Telstra compared to Spark. This in line with either:

a/ Telstra having a far larger telecommunications asset base than Spark, relative to the profits generated OR
b/ Telstra being able to write off their communications assets in depreciation, far more rapidly than Spark in relative size terms

Back in FY2018 Telstra did start as a much more asset intensive business than Spark. Telstra was still in the process of exiting its legacy copper network, whereas this was job done many years before at Spark as the Chorus lines business was 'sliced off' what was then the old Telecom NZ in 2011. But what did the businesses look like at EOFY2022, when Telstra declared the migration to nbn (largely) over?



YearTelstra Profit {A}Telstra P,P&E (balance sheet) {B}{A}/{B}
Spark Profit {C}Spark P,P&E {D}{C}/{D}


FY2022$1,645m$20,485m0.0803
$397m$1,109m0.3580



You can see from the above that for a given amount of NPAT, Telstra is -still- a far more asset intensive business (more than four times more in fact) than Spark. This comes as a huge surprise to me. For two businesses that are essentially doing the same job, one in Australia, the other in New Zealand, Spark is doing a lot more with their asset base, in terms of earning dollars per value of equipment operated, than Telstra.

Telstra is a little vague on their depreciation schedules, claiming "the expected benefit of communication assets is 25 years" (AR2022 p108).
Spark meanwhile tells us that "links and cables have a design life of 10-50 years" and "Network Transport has a design life of 3-15 years." (AR2022 p102). Squint and you can say that Telstra and Spark are telling us much the same thing. So it looks like /a/ is the answer to explaining the profit efficiency differential.

The figures are clear on what has happened. But explaining why the two companies have such differing capital requirements is a whole other question. Any ideas?

SNOOPY

[Snoopy]

I now want to go back prior to the existence of Chorus in New Zealand and nbn in Australia. This was the last time the then Telecom NZ was comparable to Telstra.



YearTelstra Profit {A}(1)Telstra Depreciation {B}(2){B}/{A}
Spark Profit {C}(1)Spark Depreciation {D}(2){D}/{A}


FY2010 (prior to fixed network de-merger)$3,940m$4,345m1.103
$382m$757m1.982


FY2022 (after fixed network de-merger)$1,645m$2,572m1.563
$397m$234m0.5894



Notes

1/ Earnings are adjusted to reflect operational earnings and eliminate one off effects.
https://www.sharetrader.co.nz/showthread.php?2476-TLS&p=1003216&viewfull=1#post1003216
https://www.sharetrader.co.nz/showthread.php?9630-SPK-Spark-NZ-(TELCO)&p=997680&viewfull=1#post997680

2/ Depreciation is depreciation of plant property and equipment only.

The above table is interesting, Looking at both companies in isolation, the table shows that back in FY2010, depreciation at Spark (or Telecom NZ as it was then - when it still incorporated what were to become the Chorus assets) was a much larger proportion of profit than twelve years later. But at Telstra (which had not transferred any assets to nbn in FY2010), depreciation has increased to a much larger proportion of profit by FY2022, even as the fixed line network assets have been transferred! This is what I would expect for Telecom NZ/Spark, but not what I would have expected for Telstra. We do know that a larger asset base will, in dollar terms, always give rise to a larger depreciation expense. How can this stark divergence in depreciation trend be explained?

One explanation could be that competition is a lot more intense in Australia. That means for the investment required to be a serious market player, Telstra just can't charge as much per customer for their services as the likes of Spark can in New Zealand. Another possible explanation is that Telstra are more 'future focussed', building out in advance the assets that will be required to capture future profit streams. By comparison Spark could be more 'today focussed' in their profit outlook. Which will prove the better path to adaptation going forwards I am not sure. But for better, or for worse, the figures are showing the earnings transformation over the period from FY2010 to FY2022 for Spark has been further reaching than at Telstra. Nevertheless you can also argue that, Telecom/Spark had more reason to transform, given the relatively low returns on their asset base back in FY2010.

Now fast forward twelve years to FY2022. The depreciation expense for both companies has shrunk in dollar terms. That is consistent, with Telstra drip feeding their old fixed line monopoly network to nbn. Whereas in the case of Telecom NZ (later Spark) it all went to Chorus in one hit. But look at now much the depreciation expense shrank in proportion. At Spark we are down to 2/3 of what it was twelve years earlier. But at Telstra depreciation has dropped to only 1/3 of what it was. We know that Spark is not depreciating their assets faster than Telstra (see post 166). So it must be that Spark have less assets to depreciate.

I wonder what evidence there is for Telstra over-investing for their future?

SNOOPY

[Snoopy]

I wonder what evidence there is for Telstra over-investing for their future?


Strictly this is the opposite end of the depreciation story. A record of the money spent buying new items to replace the depreciated ones. But there is a strong correlation between the two when you are operating in a mature market. The following is a table of 'communications assets acquired' for both Spark/Telecom and Telstra between 2010 and 2022




Financial Year
Spark Communications Assets AcquiredDivergence from Average (1)Data Centre CapexMobile Network Equipment CAPEX
Telstra Communications Assets Acquired(Telstra Communications Assets Acquired)/5Divergence from Average (2)



2010
$600mNMUnknownUnknown
$2,326m$465m-11.2%



2011
$598mNMUnknownUnknown
$2,167m$433m-17.3%



2012
$267mNMUnknownUnknown
$2,293m$459m-12.5%



2013
$136m-19.0%UnknownUnknown
$2,645m$529m+0.19%



2014
$272m+61.9%Unknown$130m
$2,584m$517m-1.40%



2015
$159m-5.36%$61m$93m
$2,322m$464m-11.4%



2016
$162m-3.57%$34m$77m
$2,913m$583m+11.2%



2017
$148m-11.9%$42m$102m
$3,647m$729m+39.2%



2018
$153m-8.93%$39m$115m
$3,536m$707m+35.0%



2019
$146m-13.1%$36m$118m
$3,004m$601m+14.7%



2020
$166m-1.19%$24m$116m
$2,467m$493m-5.8%



2021
$167m-0.60%$20m$106m
$2,084m$417m-20.5%



2022
$166m-1.19%$15m$125m
$2,098m$419m-20.1%




Notes

1/ Average telecommunications equipment brought into service at Telecom/Spark of $168m has been calculated by taking the data-set to cover years FY2013 to FY2022. Earlier years have been omitted from the average calculation as Chorus was still part of the business in those years.
2/ Average telecommunications equipment brought into service at Telstra of $2,620m has been calculated by taking the data-set to cover years FY2010 to FY2022.
3/ I have divided certain Telstra information by 5 to align it population wise with the population of New Zealand.
4/ The financial year for both companies ends on 30th June.
5/ Dollar amounts are in NZD for Telecom/Spark and AUD for Telstra.
6/ 'Network Assets' include property plant and equipment assets, but not spectrum.

----------------

The first thing readers will notice from this table is that there is a lot more detailed information available from Spark than Telstra. I don't know why. Slacker reporting requirements across the Tasman? Two columns of particular comparative interest is the 'annual spend on new equipment at Spark', verses the comparable figure divided by five at Telstra. Dividing by five, equalises the spend by population. The total spend at Telstra is more (no surprise there as Australia is a much larger country.) But what is surprising is that when I adjust for population the Australian spend is still more - by a lot (e.g.$166m vs $419m).

I have marked the peak spending years for each company in red. If both companies were updating the latest technology at pace, you might expect that these spending peaks would co-incide in the same year. But they don't. Why not? What sort of telecommunications equipment was being updated in those lumpy spending years? That is the question that I want to address next.

SNOOPY

[Snoopy]

I have marked the peak spending years for each company in red. If both companies were updating the latest technology at pace, you might expect that these spending peaks would coincide in the same year. But they don't. Why not? What sort of telecommunications equipment was being updated in those lumpy spending years? That is the question that I want to address next.


The peak Property Plant and Equipment investment year at Spark was FY2014. This was the year Spark rebranded from the old 'Telecom NZ' to the new 'Spark' identity. Here are the two 'biggest things' they were spending their capital investment budget on.

1/ 4G Mobile

When talking about the spectrum acquired (remember that 'spectrum acquired' is a different asset class -intangible spectrum licences- different to PP&E we are discussing here) in that year (AR2014 p12) Spark said this:
"Securing this key strategic long term asset gives us the competitive advantage of being the only mobile network operator with four lots of 700MHz spectrum and will be critical to the performance and economics of nationwide 4G mobile."

AR2014 p30 goes on to say:
"In FY2014 we delivered a brand new LTE (Long Term Evolution) / 4G mobile network to all major centres and towns throughout New Zealand. as well as improved coverage and capacity in our existing mobile network (3G XT)."

Spark doesn't specify how their PPE spending is split between the two generations of mobile networks. But I am willing to bet that since FY2014 was the year Spark introduced 4G to the main centres, this is where most of that $130m mobile network asset spend over FY2014 went. I am reading the above two quotes to say that FY2014 was the 'beach head year' for 4G, and the spectrum acquired ensured its future expansion. The first 5G mobile network customers signed on in September 2019 (FY2020). So what was Spark doing spending $159m+$162m+$148m+$153m+$146m=$768m in mobile network assets between the launch of 4G and the launch of 5G? A principal advantage of 4G over 3G is a much faster download speed for video. This drives user behaviour, which in turn requires more hardware in the network, - even as the underlying operating technology behind the service does not change. In fact VoLTE, or voice capability over the 4G network, was only activated during FY2020. 'Build it and they will come' is one tech investment philosophy. Yet in the case of 4G mobile it looks like 'Build it and they will come and then you will have to keep building' is a more accurate description of what it takes to run a modern day mobile network. Total spend over those 4G headline years was $768m+$130m= $898m. Some of that spend would have been supporting 3G. So in round figures (a guess), I would suggest that Spark's 4G 'hardware spend' over six years amounted to $750m.
'
2/ Data Centres

The second technical area where Spark was spending a lot of money on equipment was 'cloud computing'. In August 2013 (FY2014) Telecom's (Spark's) Gen-i (now Spark Digital) business unit opened a new $10.5m Tier 3 (1) data centre in Christchurch, complementing the 14 existing Spark data centres that were created under the now superseded Gen-i brand. This total of 14 did not include 6 'Revera' data centres.

On 7th May 2013 (FY2013) Spark purchased a company called 'Revera' for $85m. 'Revera' was a data centre provider, specialised in servicing large corporate clients and the government. Revera operated data centres in Auckland and Wellington (the latter built in Upper Hutt for $40m in 2012). In July 2014 (FY2015) Spark spent $17m on a company called Appserv. Appserv offers a suite of services through its purpose built data centre in Auckland, serving a wide range of customers across major sectors. Appserv had been growing consistently for the previous 14 years. Appserv concentrates primarily on serving small and medium sized business customers via cloud desktop-as-a-service solutions. All of these brands are now merged under the umbrella of another acquisition CCL (was Computer Concepts Limited). CCL, a South Island headquartered company, was acquired for $50m by Spark in December 2015 (FY2016). In the same year, Spark made a significant investment in a new data centre in Christchurch (Perimeter Road), and completed an expansion of Spark’s Dunedin data centre (total cost of $34m (see post 168)). Before FY2015, there was not enough detail in the Spark report to know exactly what they spent internally (as opposed to buying add on companies) on data centres. But from FY2015 to FY2022 the total internal spend was (ref post 168): $61m+$34m+$42m+$39m+$36m+$34m+$20m+$15m= $281m.

The (Spark) Data Centres Customer Handbook, dated November 2022, on page 8 lists the current data centre site addresses as: Auckland CBD, Papakura, Takanini (these 3 in greater Auckland), Hamilton Tauranga, Wellington CBD, Christchurch Airport and Dunedin. That list doesn't cover the 15 data centres Spark talked about in FY2014, let alone any data centres acquired through acquisition. It could be that some of the smaller data centres have been amalgamated since FY2014. Or it could be that the definition of data centre has changed to a purpose built site, rather than a few racks in a building leased from Chorus. Either way it doesn't change total money documented as invested in data centres to be: $10.5m+$85m+$17m+$50m+$281m=$444m.


Notes
1/ A tier 3 data centre has multiple paths for power and cooling and systems in place to update and maintain it without taking it offline. It has an expected uptime of 99.982% (1.6 hours of downtime annually).

Conclusion

Sparks big expenditure items to see them into their 'retail era', I estimate totalled: $444m+$750m= $1,200m (round figures)

SNOOPY

[Snoopy]

I have marked the peak spending years for each company in red. If both companies were updating the latest technology at pace, you might expect that these spending peaks would coincide in the same year. But they don't. Why not? What sort of telecommunications equipment was being updated in those lumpy spending years? That is the question that I want to address next.


The peak Property Plant and Equipment spending years at Telstra were FY2017 and FY2018. What was it they were spending their investment capital on over that time?

1/ Beefing up 4G mobile: 'Faster speeds in more places' was the mantra. 88.9% (AR2017p26) of the Australian population now (as of EOFY2017) were given access to double the download speed of standard 4G, the so called 4GX standard, covering 99.2% of the Australian population by EOFY2018 (AR2018 p9). This figure was revised up to 98.6% by EOFY2018 (p9 EOFY2018). In capital CBDs more than 100 sites across five capitals were now capable of delivering highest possible download speeds of 1GBps (but more typically 5Mbps to 300Mbps). As an aside, 83% (AR2017 p26) of ADSL customers (fixed line legacy) were then (EOFY2017) able to get speeds that support a 'quality video experience'. (AR2017 p10).

This 'beefing up of networks' is all about fulfilling demand for video. "Telstra Live Pass" let customers watch every AFL, NRL and National Netball game live fast and data free (1.45 million subscribers already, with 1.2m of those getting access as part of their mobile subscription plan (AR2017 p24)). Meanwhile "Telstra TV" became a content aggregator covering big names like 'Netflix', 'Stan' and 'Foxtel Now'. Telstra were the first to bring on the LTE-broadcast (LTE-b) technology to market to support this. (AR2018 p9). LTE-b technology enables real time data to be broadcast to all users on a cell site, instead of requiring all users to have a separate stream. This minimises the network load of popular, bandwidth-intensive real-time video content,

Future uses of 4G being trialled over FY2017 included V2X (vehicle to everything) and V2I (vehicle to infrastructure) technology. Telstra saw driver-less vehicles becoming mainstream (AR2017 p15). Telstra expected their mobile network capacity would have to increase five fold between FY2017 and FY2022 (AR2017 p18). This would accommodate four times the number of devices (AR2018 p8). Telstra committed $1.5b of their $3b additional investment overbuild' that ran from FY2017 to FY2019 to the 'networks of the future' build program (AR2017 p18). This figure included some preparatory spend to set up 5G (AR2018 p5).

It is all very well planning to have the best 4G network out there, but how would you measure this? Telstra were ranked number 1 on the 'Netflix Speed Index' in July 2018 for both mobile and fixed (AR2018 p5). (The Netflix ISP Speed Index is a measure of prime time Netflix performance on particular delivery channels).

By EOFY2018 (AR2018 p5) $1.5b had been spent, and 500 new and 1,100 upgraded mobile sites had been switched on and around 400 small cells activated. (Small cells provide additional network capacity or mobile device coverage to a small geographic area. They operate at lower power than a traditional mobile phone base station and use smaller equipment). 800 new base stations were eventually funded via the Federal Government's Mobile Black Spot Program (AR2019 p5). Going forward a co-investment program is in place to fund regional infrastructure in areas that have high community value but would otherwise be uneconomical to build.

1b/ Preparation for 'The Internet of Things' (IoT) was made by activating 'Cat M1' across the 4GX (higher speed and bandwidth 4G) coverage footprint. The alternative Narrowband IoT (sending small volumes of data at very low power levels) now covered major Australian cities and many regional towns (AR2018 p5). Narrowband applications include moisture sensors and livestock tracking. Meanwhile 'Cat M1' is when more data. like 100kbps, is required. An example is health tracking applications. Telstra claims to be one of the first carriers in the world to offer both of these IoT technologies (AR2018 p9).

Telstra have expanded Wi-Fi calling to millions of compatible mobile devices, by increasing the number of WiFi hot spots. Over 2017 'TelstraAir' switched on their one millionth Australian location.

By EOFY2019, the Telstra mobile network had expanded to cover 2.5 million square kilometres (PR2019 slide 15).

2/ Inter City Fibre Highway Telstra talk about supporting others data-centres, rather than building their own. Over FY2018 (AR2018 p8) Telstra completed the next stage of the upgrade of the transmission network by deploying high capacity next generation optical Transport technology between five Australian cities: Perth, Adelaide, Melbourne, Sydney, and Brisbane. The distance by road between these centres is: 2690km, 730km, 880km, and 910km, for a total of 5,210km. An equivalent geographic coverage in New Zealand would seek to link cities: Auckland, Wellington, Christchurch, Dunedin and Invercargill. The distance by road between those centres is: 640km, 440km, 360km and 200km, for a total of 1,640km. From the comparative distance, creating a fibre highway linking the main centres of Australia would be a much more expensive exercise than doing the same effective job in New Zealand

3/ Telstra Smart Modem This connects a user to the internet faster through the mobile network without having to wait for fixed services to connect. If there is an interruption to the broadband service, the gateway will automatically switch over to a mobile connection within minutes (AR2018 p9).

4/ Subsea international cable network expanding Telstra have committed to building a new subsea cable between Singapore, Indonesia and Australia (with partners AARnet, Google, Indosat Ooredoo and Singtel) (AR2017 p13)

Adding Everything Up

Total capital expenditure over FY2017, FY2018 and FY2019 was $4.6b, $4.7b and $4.1b respectively (PR2019 slide 29). I believe these total was largely spent on the four categories of expenditure above. Note that these totals do not include expenditure on spectrum or externally funded capex (not 100% certain what this means, possibly the joint venture undersea cables and/or government grants to fill mobile network black spots?). Much of the latter spend was on updating new digital platforms. My thinking is that much of this money has gone into software which will be amortised rather than depreciated. For this reason I am approximating the detailed hardware upgrades expenditure to be the money spent over FY2017 and FY2018 only, a total of: $4.6b+$4.7b=$9.3b.

Divide this figure by 5, to equalise for the population between Australia and New Zealand, and this is equivalent to a an NZ market is $1,900m.

SNOOPY

[Snoopy]

Telstra are quite up front about their mobile network in Australia covering 2,500,000km2 (PR2019, slide 15)

Spark are less forthcoming about area covered, preferring to speak about the percentage of the population that their network reaches.

The government of New Zealand is currently building a new emergency services communication network.
https://ngcc.govt.nz/public-safety-network/questions-and-answers/

In rural areas this will piggy back off existing cell towers, the ones originally owned and operated by Spark and One (or Vodafone as it was then).

The above link tells us that roam across the Vodafone and Spark networks will create a 5% uplift in coverage (a 16,500 square kilometre uplift). We can assume that Spark are already covering the area served by more urban emergency response, and that their coverage is matched by 'One'.

0.05 x (Urban Coverage Area) = 16,500km2 => Urban Coverage Area = 330,000km2
=> total area covered by Spark Mobile Network = 330,000km2 + 16,500km2 = 346,500km2

That means the Spark mobile network covers 350,000km2 in round figures.

SNOOPY

[Snoopy]

A tabular comparison between the network investments made between Spark and Telstra and of the dollar values of 'capital spending' and 'depreciation' is notable.



Spark {A}
Telstra
Telstra / 5 {B}
{B}/{A}
Reference



Transformative Assets Added Composition (prior to FY2022)4G Mobile, Data Centres4G Mobile, Inter city data highwayN/AN/A
Posts 169 and 170


Transformative Expenditure Program (prior to FY2022)$1,300m$9,300m$1,900m+46%
Posts 169 and 170


Depreciation FY2022$234m$2,572m$514m+119%
Post 166



Intercity Fibre Highway (FY2022)1,640km5,210kmN.A.N/A
Post 170


4G Network Area Coverage (FY2022)350,000km22,500,000km2500,000km2+43%
Post 171


Network Cell Towers (FY2022)1,2738,0001,600+26%
This Post




In all cases, the population adjusted relative spend and the population adjusted size of the network is greater at Telstra. The figures are not all directly comparable though, as the differing Transformative Asset Composition' shows.

The common factor of each company's 'transformative change' is the building of an up to date 4G mobile network, a kind of network that is eminently suited for data transfer. A very notable difference is that Spark is keen to 'emphasize to we shareholders' (via the AR and presentations) , spending on their own 'in house' data centres. By contrast, Telstra emphasizes their connectivity spend between major city data centres by waxing lyrical in their AR on their spend on 'the fibre pathway'. This is the 'fibre pathway' it owns 'in house' (nothing to do with nbn) to connect the likes of data centres, whether they are company owned (InfraCo branded) or not (e.g. public cloud providers, like Amazon and Microsoft).

In fact Telstra, since FY2021, has operated an in house InfraCo branded Cloud data centre in both Sydney and Melbourne, where customers can install their own hardware if they so choose (meanwhile, Spark has several such 'private' data centres in New Zealand). In equal contrast, Spark, as well, own a 'fibre backbone network' between major centres, loosely comparable to Telstra's 'fibre highway' (Note: Spoark's fibre is a completely separate network to the Chorus fibre that serves end line customers on an individual premises basis).

What I am highlighting in this comparison is that the announced emphasis on where Spark and Telstra were spending their 'transformative investment' money was subtly different.

One explanation for Telstra's apparent 'overspend' on PP&E (compared to Spark, see above table) is that Australia has such a scattered population to cover, outside of the metropolitan areas. This is particularly emphasized by the recent sales of each company's respective cell tower networks in their respective countries. From Telstra's AR2017 p29:
"15 percent of investment in our mobile network has gone to provide services to the most remote two percent of the population in Australia."
With the sale of 49% of the Amplitel business, over 8,000 physical towers (800 of which were government grant subsidised to cover nationwide black spots), mast, large pole and antenna mount structures were transferred to the new holding company. By contrast, Spark sold 1,273 mobile tower structures when it divested those physical assets to the Ontario teacher's pension fund. Equalising those two networks on a population basis -using a factor of 5-, the 1,273 mobile towers in New Zealand is equivalent to: 5 x 1,273 = 6,365 towers in Australia. That works out to be 26% more towers on an equalized population basis for Telstra in Australia.

Capital spending and depreciation charges are eventually linked. Incremental capital spending over and above the norm will lead to higher depreciation charges going forwards.

SNOOPY

[Snoopy]

There is a problem with 'poor disclosure' amongst the Telstra depreciation regime. We know the total. But we don't know anything about the make up of the assets being depreciated, nor the depreciation schedules of those items.



Spark {A}
Telstra
Telstra / 5 {B}
{B}/{A}
Reference


Transformative Assets Added Composition (prior to FY2022)4G Mobile, Data Centres4G Mobile, Inter city data highwayN/AN/A
Posts 169 and 170


Transformative Expenditure Program (prior to FY2022)$1,300m$9,300m$1,900m+46%
Posts 169 and 170


Depreciation FY2022$234m$2,572m$514m+119%
Post 166



At Spark, Telecommunications assets are being depreciated along the following lines (there are no declared equivalent figures published for Telstra, although I am guessing they would be similar):



Links and cables10-30 years


Network transport3-15 years


Mobile radio Access Network5-25 years


Customer Premesis Equipment3-5 years


International Cable and Satellite10-15 years



One way to interpret the higher population normalised depreciation at Telstra is to say that 'on average' the telecommunications equipment at Telstra must have shorter lifespans. How does that thesis fit in with the following observations?

i/ Telstra has a director for 'Network Transport and Routing Engineering'. From this, I can guess that the 'Network Transport' class of assets, referred to in the depreciation schedule, is the switching hardware and routing equipment that 'lights' the dark fibre. It is possible this category includes data centre electronics as well. I don't think that, once adjusted for population, there would be any significant difference between the 'Network Transport' depreciation schedules of Spark and Telstra.

ii/ "Mobile radio access network" assets are connected to mobile towers. The first jump in a mobile call is a radio wave signal from your personal handset to the nearest mobile radio receptor/mobile tower of the network you signed up to. That message received by the nearest tower then goes from that tower to the nearest network base station or "cell'. Furthermore, not every mobile tower on 'Mt Obscuresville ' has a cable connection running up to it. The path a mobile phone call follows can be entirely over the radio spectrum, or it might connect to a local cable node for part of the journey. 'Mobile radio access network' equipment must be 'available for use at any time', to make a viable network. So it makes sense to me that 'Mobile radio access network' depreciation is directly linked to the footprint of the mobile tower network. I need to mention here that although both Spark and Telstra have sold down their 'mobile tower networks', what has been sold down is the undifferentiated physical structures. The clever call handling and brand differentiating technology remains in the full ownership of the telco. In summary, don't expect "Mobile radio access network" depreciation to be less relevant going forwards, now that the mobile tower assets have been sold down. We know that there are proportionately more towers needed to cover a certain population in Australia, compared to New Zealand. So Telstra will have inherently higher depreciation of this asset class than Spark.

iii/ With fibre broadband in New Zealand, the on-premises equipment is provided by the wholesaler Chorus. By contrast, in Australia, Telstra make a big thing about their 'Telstra Smart Modem' (post 170), which has a relatively short depreciation life (see customer premises equipment schedule above). So it looks like Telstra has a much higher 'Customer premises depreciation' footprint than Spark.

iv/ Undersea cables. Spark (Southern Cross cable 34.8%) - AND -
Telstra (Reach 50% (investments in 40 submarine cables), Southern Cross 25%, INDIGO 'small stake' (to Indonesia and Singapore), AJC 46.9% (Australia to Japan) PIPE pacific cable (Australia to Guam) Telstra Endeavour 100% (Sydney to Hawaii) SEA-ME-WE-3 'small stake' (Perth to South East Asia, the Middle East and Europe), Dacom Crossing Corporation 49% (Korea, japan, Hong Kong, Singapore, Taiwan, Phillipines China).

- We can see that both Spark and Telstra have shareholdings in intercontinental cable networks. However, Telstra have more undersea cables to look after.

The 'dividing by 5 population equalizing trick' does not apply in the case of undersea cables,. That is because the capacity of a 'dark fibre cable' is dependent on the electronics lighting it up. So with 10,000 or 10,000,000 users,, the cost of laying the cable itself would be approximately the same.

The original cost of the Southern Cross cable (the one cable company in which both companies have a shareholding) was estimated at $US1.5billion. The most recent upgrade cost of the Southern Cross cable to 72TBps is budgeted at $US300m, of which Spark would supply $70m to $90m of equity. So it is clear that the total costs of these cables are in the billions of dollars. The length of the Southern Cross cable is just over 30,000km. Undersea cables are capital intensive and majority shareholders will see heavy annual depreciation charges as a result. And that includes Telstra (via their 50% or more ownership of Reach and Endeavour) but not Spark.

Nevertheless, high depreciation will reduce the profit on a Telco's minority stake equity accounted investment entities, as accounted for by Telstra and Spark too. So while the effect of high depreciation of cable networks will be there in any NPAT result, the effect of that depreciation, as recorded in the Spark/Telstra accounts, is indirect. That means depreciation expenses of minority stake equity accounted investments will not appear as depreciation in the books of the investment parent entity (be that Spark or Telstra).

In summary, as far as depreciation accounting charges go on international cable assets, Telstra will have a far greater direct weight to carry than Spark.

Summing the whole post up

Bullet points ii/, iii/ and iv/ would suggest that Telstra has an inherently higher depreciation expense structure than Spark, and there is very little 'good management' at Telstra can do about that.

SNOOPY

[Snoopy]

This is not a subject I know much about. But I found the transcript from the Telstra's 12th November 2020 investor day contained some fascinating insights on this subject. The following are selected excerpts from the talk delivered by Nikos Katinakis, the Group Executive of Telstra, for Telstra Network and IT. Nick is talking about what frequencies -and why- that Telstra are eyeing up in the deployment of their mobile 5G network, and how those frequencies will work around their existing 3G and 4G networks to do so. The talk is equally relevant to what Spark may or may not be doing with their own roll out of 5G in New Zealand.

-----------------

"5G is a lot more efficient than 4G. Our data consumption continues to grow by 30 to 40% per year, and we are always keen to use the next generation of technology that allows us to deliver more data at a lower cost per bit."

"Last year, we walked you through how the spectrum situation plays out in 5G. I would like to give you an update on this. We have three layers of spectrum that we are making available to 5G. Low band; great for coverage over long distances and in building penetration from the outside. We are selectively using our 850 [Mhz] spectrum, that is also used for 3G, and 700 [Mhz], that is used for 4G."

"We have announced that we are shutting down our 3G network in 2024, and in the meantime, we are deploying some cool technology called dynamic spectrum sharing that allows us to use the same radio for both 3G and 5G simultaneously. Mid-band is perfect for coverage improvements and additional capacity, and then high band or mmwave, excellent for massive capacity uplifts. We are using the mid-band, the 3.5 [Ghz] spectrum, as the foundation of 5G everywhere we deploy. "

"Two points of differentiation in the way we’re deploying our network, is that we have focused on deploying 5G in a contiguous fashion, and also by using low bands for inbuilding penetration."

"One important point that I want to make on this; it’s around speeds. As you can easily understand, big speeds start to become irrelevant. Most telcos around the globe, including ourselves, have been publishing big speeds that indicate the progress of the technology. We recently announced 4.2 gigabits per second on a 5G test. With the introduction of mmwave, the numbers get so large, that they really become irrelevant. Instead, we have started focusing on the actual experience that our customers are getting, wherever they are, and wherever they use their devices and their services."

----------------

While I accept everything that Nick is telling us above, there is a lot I do not understand.

Yes I get that 5G will deliver more data. But at a lower cost per bit? How does that work? I thought (perhaps wrongly) that 5G was going to require more receptors than 4G (mainly to improve latency) and so it would be a higher capital and power cost network to run. Of course it is possible for 5G to be higher cost to run, but lower cost per bit of data processed, simply because so much more data is able to be processed. Perhaps that is what Nick is referring to?

The velocity of an electromagnetic wave can be expressed in terms of wavelength and frequency as follows:
v=fλ, where 'f' is the frequency of the wave and λ (lambda) is the wavelength.

The speed at which electromagnetic waves travel is the speed of light, a constant value represented by the letter 'c'. So the more familiar form of the above equation is: c=fλ. What this equation is telling us, is that the higher the frequency of the electromagnetic wave, the lower the wavelength. This is why Nick is telling us that low band (i.e. low frequency) signals are better for longer distances,, because they are accompanied by a longer wave length (easier to cover more distance). I think the longer wavelength is also what allows these lower frequency signals to leap through walls more easily.

The energy of an electromagnetic wave is proportional to its frequency. The so called 'high band' radiation is 'high frequency'. So this is why I thought 5G was more power hungry, as more power was needed to capture more data. That means I am a little perplexed by Nick saying Telstra will use 'medium frequency' as their base broadcast range for 5G. Yet right at the beginning of the talk, Nick is even saying he has three 'layers of spectrum' (presumably low, medium and high) available for 5G? What is going on there?

I guess anyone who has read this far will have come to the conclusion that I know a little bit about what I am talking about, but obviously not enough to take in the full impact of what Nick is saying. So anyone with a better understanding of what is being proposed here, please feel free to enlighten me.

SNOOPY

[Snoopy]

Spark {A}
Telstra
Telstra / 5 {B}
{B}/{A}
Reference



Transformative Assets Added Composition (prior to FY2022)4G Mobile, Data Centres4G Mobile, Inter city data highwayN/AN/A
Posts 169 and 170


Transformative Expenditure Program (prior to FY2022)$1,300m$9,300m$1,900m+46%
Posts 169 and 170


Depreciation FY2022$234m$2,572m$514m+119%
Post 166



Capital spending and depreciation charges are eventually linked. Incremental capital spending over and above the norm will lead to higher depreciation charges going forwards.


Some comments here to expand on my quoted comment above in bold. Capital spending and depreciation would exactly match if the rate at which equipment wore out was equal to the new expenditure spend each year needed to replace that equipment that had worn out. As a general rule this is not what happens, as capital expenditure tends to be 'lumpy'.

In the case of the quoted table above, the depreciation expense is real. But my figure as to what the dollar capital expenditure is at Telstra towards their 'developing 4G network' and 'cross country city node fibre connections' in particular is an estimate.
This is in contrast to when I did a similar exercise on Spark (post 769), which was more accurate due to better disclosure. I have taken the total declared capital expenditure at Telstra over FY2017 and FY2018 to represent the capital spending on this 'technology transformation' effect. But this period of expenditure at Telstra will have also included expenditure on existing 2G and 3G networks, expenditure on the existing legacy fixed network, and 'Land and Buildings' not tied to communication assets as well as 'other plant and equipment', BUT excluding overseas funded assets (which I am guessing includes the jointly funded but minority owned stakes in 'international joint venture and fully owned undersea cables'). My underlying assumption was that all capex at Telstra over FY2017 and FY2018 was towards 'transformative projects', when I knew that in practice this was not true. To make up for this 'overestimate', I assumed that zero capital expenditure over FY2019 at Telstra went towards the transformative projects, when in fact I knew that some 'finishing off' expenditure on the transformative projects did spill over into that year.

If a company was to make a big capital investment over a short period, then I would expect the current year annual depreciation expense to be quite a small proportion of the new investment. So what do we actually see?:

Spark: $234m/$1300m = 18%

Telstra: $524m/$1900m = 27%

We see the Telstra annual depreciation, as a proportion of 'transformative asset investment', is incrementally larger than at Spark. How to explain that? One explanation is that my estimate of Telstra's transformative investment was too low, despite being 46% higher than Spark in inter company comparative terms (possible). Another explanation is that depreciation at Telstra has been extra high, because of the closing down of the legacy fixed asset network. As users migrate to nbn, this has meant an accelerated depreciation schedule' on those soon to be shut down legacy network assets. With this process largely complete, we will have to wait until the FY2023 results are posted to see if this is part of the explanation. A look at the FY2023 half year result suggests depreciation is down 4.9% for that interim period, although how that will translate to the full year period at Telstra is unknown.. If 'accelerated legacy network depreciation' is a factor, this would imply that the remaining asset value on the balance sheet relating to that network is significantly more than the capital on balance sheet related to the much more recently deployed 4G mobile network (quite possible).

SNOOPY

[Snoopy]

Spark {A}
Telstra
Telstra / 5 {B}
{B}/{A}
Reference



4G Network Area Coverage (FY2022)350,000km22,500,000km2500,000km2+43%
Post 171


Network Cell Towers (FY2022)1,2738,0001,600+26%
Post 172




Plenty of speculation from me (post 175) on why depreciation at Telstra is whatever way you look at it higher than Spark. But let's not forget a possible simpler explanation. Namely that Australia being such a vast country needs more infrastructure to service a given number of people. And furthermore, Australia being such a harsh country, -weather wise-, the equipment deployed in Australia does not last as long as if that same equipment was deployed in New Zealand. The extent in the geographic disparity between Australia and New Zealand is very evident in the table above.

SNOOPY

[Snoopy]

The last in my series of posts considering why depreciation is higher, by whatever measure you use, at Telstra compared to Spark concerns the in country fibre highway between main centres that both Spark and Telstra have built, but that only Telstra 'really trumpets'.



Spark {A}
Telstra
Telstra / 5 {B}
{B}/{A}
Reference


Intercity Fibre Highway (FY2022)1,640km5,210kmN.A.N/A
Post 170



First an admission. I don't know the exact path these fibre highways take. The total distances I have used approximate the sum total of main road highway distances between adjacent major centres in the two respective countries. Furthermore these totals do not consider any ''branch lines' (for example Sydney to Canberra or Queenstown to Dunedin) that may exist. My reasoning here is that although the fibre cables may not exactly follow the road path, it would make sense to have them reasonably accessible by road to allow storm or earthquake damage to be quickly repaired. Branch line (if they exist) lengths are likely small compared to main trunk line distances. So I think just comparing my estimate of the main trunk fibre line length within each country makes for a fair comparison.

You will notice in the above table that all the mathematical scaling that I could have employed I have deemed N.A. or 'not applicable'. This is for the same reason I discussed in post 173 when I was talking about international inter-continental fibre cables, namely

"The capacity of a 'dark fibre cable' is dependent on the electronics lighting it up. So with 10,000 or 10,000,000 users,, the cost of laying the cable itself would be approximately the same."

So just like the international fibre cable situation, the number of users is entirely secondary to the shear number of kilometres covered in determining the fibre cable laying cost. Put succinctly, Australia is the bigger country. so 5210/1640= 3.2 times more length of cable is needed to cover it. More cable = more depreciation cost. It is as simple as that!

SNOOPY

[Snoopy]

This is not a subject I know much about. But I found the transcript from the Telstra's 12th November 2020 investor day contained some fascinating insights on this subject. The following are selected excerpts from the talk delivered by Nikos Katinakis, the Group Executive of Telstra, for Telstra Network and IT. Nick is talking about what frequencies -and why- that Telstra are eyeing up in the deployment of their mobile 5G network, and how those frequencies will work around their existing 3G and 4G networks to do so. The talk is equally relevant to what Spark may or may not be doing with their own roll out of 5G in New Zealand.

-----------------

"5G is a lot more efficient than 4G. Our data consumption continues to grow by 30 to 40% per year, and we are always keen to use the next generation of technology that allows us to deliver more data at a lower cost per bit."

"Last year, we walked you through how the spectrum situation plays out in 5G. I would like to give you an update on this. We have three layers of spectrum that we are making available to 5G. Low band; great for coverage over long distances and in building penetration from the outside. We are selectively using our 850 [Mhz] spectrum, that is also used for 3G, and 700 [Mhz], that is used for 4G."

"We have announced that we are shutting down our 3G network in 2024, and in the meantime, we are deploying some cool technology called dynamic spectrum sharing that allows us to use the same radio for both 3G and 5G simultaneously. Mid-band is perfect for coverage improvements and additional capacity, and then high band or mmwave, excellent for massive capacity uplifts. We are using the mid-band, the 3.5 [Ghz] spectrum, as the foundation of 5G everywhere we deploy. "

"Two points of differentiation in the way we’re deploying our network, is that we have focused on deploying 5G in a contiguous fashion, and also by using low bands for inbuilding penetration."

"One important point that I want to make on this; it’s around speeds. As you can easily understand, big speeds start to become irrelevant. Most telcos around the globe, including ourselves, have been publishing big speeds that indicate the progress of the technology. We recently announced 4.2 gigabits per second on a 5G test. With the introduction of mmwave, the numbers get so large, that they really become irrelevant. Instead, we have started focusing on the actual experience that our customers are getting, wherever they are, and wherever they use their devices and their services."

----------------


I am coming increasingly to the view that it is the growth in mobile networks that will drive the incumbent telecommunications market players growth going forwards. So which company is doing the better job up to now, Spark or Telstra?



FY2019FY2020FY2021FY2022FY2023
latest 2 year gain4 year gain



Telstra Mobile Revenue$10,084m$10,130m$9,310m$9,470m$10,258m
+10.2%+1.73%


Telstra Mobile Revenue (divided by 5)$2,017m$2,026m$1,862m$1,894m$2,052m


Telstra Mobile EBITDA margin34%34.7%39.2%42.2%44.9%



Spark Mobile Revenue {A}$1,271m$1,288m$1,311m$1,351m$1,470m
+12.1%+15.7%



Spark Mobile Product Cost {B}$496m$459m$474m$447m$486m



Spark Mobile Unallocated Cost allocation, {C} (Note 1)$318m$328m$322m$320m$367m




Spark Mobile Total Cost allocation, {B}+{C} ={D}$814m$787m$796m$767m$853m
+7.16%+4.79%


Spark Mobile EBITDA margin, ({A}-{D})/{D} 36.0%38.9%39.3%43.2%42.0%




Notes

1/ I am using the table below to apportion unallocated labour and other operating costs to the 'mobile' operating unit at Spark. This information is needed to convert Sparks unconventional metric of 'product margin' (See AR section 2.1 on 'Segment Information') into the more universally measured 'EBITDA margin'.



FY2019FY2020FY2021FY2022FY2023



Spark Mobile Revenue {A}$1,271m$1,288m$1,311m$1,351m$1,470m



Spark Total Revenue {B} (Note 1)$3,518m$3,588m$3,565m$3,694m$3,875m



Spark Mobile Cost Allocation Ratio{A}/{B} = 'R' 0.36130.35900.36770.36570.3794



Spark Total Labour Cost (Unallocated) {C}$475m$511m$491m$495m$511m



Spark Total Other Operating Expenses (Unallocated) {D}$404m$402m$385m$381m$456m



Spark Mobile Unallocated Cost allocation, R({C}+{D})$318m$328m$322m$320m$367m




Telstra in their 'Full Years results and operations review" have a table labelled 'Product EBITDA margins'. It is these figures I have put in the above table. I did wonder if they had 'done a Spark' and left labour and other costs out of their figures. But after I had calculated the sum of EBITDA earnings implied by that table, it seems this is not the case. The reason the table is headed 'Product EBITDA earnings' is to differentiate it from the segmented analysis where earnings are grouped under business header units, not product groups.

--------------------------

[Snoopy]

This thread has been dormant for 10 years, but time to fire it up again. The thread title should now be SPK vs TLS. But I hope Vince will sort that out when he returns from hibernation. A lot has happened in 10 years. But after growing apart with what was TEL shedding their fixed network arm Chorus twelve years ago, TLS has (finally) followed with their own fixed line network going to nbn, with the associated transfer payments now rounding down. Now we are left with what were the two former incumbents, still the largest telecommunications retailers in their respective countries. I feel a comparative stand off coming on.....

The population figures I have for both countries as of 2022 were 5,185,288 (New Zealand) and 26,124,814 (Australia). That is a ratio of 5.0:1 in favour of Australia. I have added a row to the table to normalise for this population mismatch where appropriate by dividing the TLS figure by 5.



Spark (SPK)

Telstra (TLS)
Telstra (TLS) (population normalised)


Operational SectorTelecommunicationsTelecommunications


Total Employees4,976
28,8895,778


Geographic Market(s)New ZealandAustralia


Share Price 15-05-2023$NZ5.22$A4.35


Market Capitalisation 15-05-2023$NZ9.732b
$A49.92b$A9.984b


Capitalised Dividend Valuation per share (2019 to 2023)$NZ5.24$A3.09


Declared earnings (FY2022)$NZ410m
$A1,814m$A363m


Normalised earnings (FY2022)
$NZ397m
$A1,643m
$A329m


Normalised eps (FY2022)NZ20.9cA14.2c


Normalised eps growth over 4 year period (FY2018 to FY2022)+7.18%+2.90%


Historical PER (SP@15-05-2023)(FY2022)25.130.6


dps (paid during FY2022)NZ12.5c+NZ12.5cA5c+A6c


Earnings Payout Ratio (excluding DRP)120%77.5%


Gross dps (paid during FY2022)NZ17.36c+NZ17.36cA7.14c+A8.57c


Historical Gross Dividend Yield (using Share Price 15-05-2023)6.63%3.61%


Shareholder Equity (based on equity at EOFY2022)$1,475m
$A16,837m$A3,367m
fact

ROE (based on equity at EOFY2022)26.9%9.77%
Wayne

Sales (FY2022)$3,720m
$A16,837m$A3,367m


Net Profit Margin (FY2022)10.7%6.98%


Total Drawn Term Debt (last balance date EOFY2022)$1,526m
$A10,982m$A2,196m


MDRT (Based on Drawn Term Debt at balance date EOFY2022)3.84 years6.05 years



At this point I was planning to have a short summary on the relative merit and demerit points of investing into Spark and Telstra. But going through the comparative columns line by line, it is apparent that Spark is outperforming Telstra in all measures. There is nothing we can learn from the Aussies, and there appears to be everything they can learn from us!

Operational metrics show how a company is performing. But for investors, the key statistic to look for is the value you get for the price you pay. Looking at both through a 'no growth' capitalised dividend lens, you would be buying SPK as a no growth prospect on the market today at fair value. OTOH the premium you are paying for TLS ($A4.35 / $A3.09 = +40%) indicates a lot of forward growth is already built into the share price.

It is rare that such a comprehensive comparison is as one sided as this. Buy Spark on share price weakness and sell TLS into any share price rally looks to be the message this table is telling us.

discl: hold SPK and TLS, but a lot more of the former.


Another year, another head to head contest. The thread title should now be SPK vs TLS. Vince is still on his cryogenic break by the look of it, so the thread title remains frozen. The two former telecommunications incumbents, still the largest telecommunications retailers in their respective countries, face off.....

The population figures I have for both countries as of 2022 were 5,185,288 (New Zealand) and 26,124,814 (Australia). That is a ratio of 5.0:1 in favour of Australia. Table column 3 normalises figures for this population mismatch where appropriate by dividing the TLS figure by 5.



Spark (SPK)

Telstra (TLS)
Telstra (TLS) (population normalised)


Operational SectorTelecommunicationsTelecommunications


Total Employees5,432
31,7616,352


Geographic Market(s)New ZealandAustralia


Share Price 18-10-2023$NZ4.99$A3.87


Market Capitalisation 18-10-2023$NZ9.206b
$A44.71b$A8.943b


Capitalised Dividend Valuation per share (2019.5 to 2023.5)$NZ5.32$A3.15


Declared earnings (FY2023)$NZ449m
$A2,051m$A410m


Normalised earnings (FY2023)$NZ425m
$A2,128m$A426m


Normalised eps (FY2023)NZ23.0cA18.4c


Normalised eps growth over 4 year period (FY2019 to FY2023)+5.99%+52.1%


Historical PER (SP@18-10-2023)(FY2023)23.121.0


dps (paid during FY2023)NZ12.5c+NZ13.5cA7.5c+A8.5c


Earnings Payout Ratio (excluding DRP)113%76.2%


Gross dps (paid during FY2023)NZ17.36c+NZ18.75cA10.71c+A12.14c


Historical Gross Dividend Yield (using Share Price 15-10-2023)7.24%5.90%


Shareholder Equity (based on equity at EOFY2023)$1,940m
$A17,816m$A3,563m


ROE (based on equity at EOFY2023)21.9%11.9%
Wayne

Sales (FY2023)$3,875m
$A23,173m$A4,635m


Net Profit Margin (FY2023)11.0%9.18%


Total Drawn Term Debt (last balance date EOFY2023)$1,052m
$A12,675m$A2,535m


MDRT (Based on Drawn Term Debt at balance date EOFY2022)2.48 years5.96 years



Discussion

In an industry renowned for cost cutting, I was surprised to see the workforce of each protagonist grow by around 10% over FY2023. In the case of Spark, this was primarily explained by an in-sourcing of field services, no doubt assisted by growth in the company's contracting arm Entelar (which includes the old Connect 8). Added to that was an increase in staff at subsidiary MATTR. MATTR is the 'exciting' standalone Spark subsidiary company. It provides infrastructure for verifiable data and digital trust. MATTR operates over a Software as a Service (SaaS) Platform. Meanwhile over FY2023 Telstra expanded into new markets, acquiring Digicel Pacific (1700 employees). Furthermore Telstra recalled outsourced overseas call centre jobs back to Australia, resulting in what were indirect contract jobs being returned to full time employment status. Finally organic growth in the 'Telstra Purple': professional services, managed services and cloud would have been a sure bet to add to the head count in that specialist division.

There are differences worth mentioning. But my overall impression is how similar our two protagonists are from an investment perspective on those raw table numbers. Telstra is much bigger, courtesy of the much bigger country in which it operates. But when you scale some of those figures by 5, to take account of the relative population size of Australia verses NZ, the similarities become more obvious. In the case of normalised earnings, almost spookily so: $425m vs $426m in their respective currencies!

In a reversal from last year, it is now Spark that trades on the higher PE ratio, possibly supported by the higher dividend yield on offer. The return on shareholder equity continues to be significantly higher at Spark as well. This could be due to the vast size of Australia, with more equipment needed to connect a more thinly spread population. It could also be due to the 'not inexpensive to set up' Telstra Purple division, synonymous with highly paid 'computer techs' which have been added to with acquisitions like 'Power Health' and 'Medical Director'. These two acquisitions cost over half a billion dollars for the pair in FY2022. but actual profits from these venturesfor their part in the 'Telstra must be present' market space of 'Telstra Purple' are signalled to be years away. Spark, by contrast, have much more modest ambitions in their own in house software space, preferring to sell solutions developed by others. That means more money in the pockets of Spark shareholders today, but losing the opportunity cost of one or more of these big software projects 'coming right' in future years (with the exception of MATTR). Returning to Telstra, I think there is $800m worth of revenue within the 'Telstra Enterprise' 'business unit envelope', NAS applications in particular, which is loss making. A quick 'rule of thumb' on valuing such software assets is to 'value them at a multiple revenue'. A multiple of 5 has some historical precedence, albeit this is a 'rough measure' as it doesn't individually consider:

● Annual Recurring Revenue (business size)
● Growth rate (momentum)
● Net revenue retention (product quality)
● Gross margin (profitability)

By this measure, $800m in revenue equates to: 5x$800m/$11,554m= 35cps

Operational metrics show how a company is performing. But for investors, the key statistic to look for is the value you get for the price you pay. Looking at both through a 'no growth' capitalised dividend lens, you would be buying SPK as the better no growth prospect on the market today at fair value. OTOH the premium you are paying for TLS ($A3.87 / $A3.15 = +23%, or 72cps) indicates a lot of forward growth is already built into the share price. But looking at the cumulative four year normalised growth rate at Telstra over over 50%, verses just over 5% at Spark, is this evidence that the Telstra growth premium really is justified?

Comparing the 'product performance' disclosures at Telstra in AR2019 and AR2023, indicates from where this improved profit growth has come from. The EBITDA margin expanding from 34% to 44.9% at the largest product grouping mobile has helped. But the big change has been at the InfraCo business unit, a business unit wasn't even recognised as such in AR2019. Back then 'infrastructure' was simply regarded as a 'necessary cost'. InfraCo and the associated mobile tower company Amplitel, combined now represent more that 10% of Telstra's total revenue. And what is more they now have by far the highest EBITDA margins of 65.1% and 79.3% respectively of any business unit. But most of their 'customers' are other divisions of Telstra. That means the day to day operational parts of Telstra are operating with a much higher input cost base in FY2023 than in FY2019. Yet still the EBITDA profit margins in those other product groupings are steady or increasing on what some would say are 'artificially increased input costs'. What a brilliant way to ramp up profitability across all the front line divisions without appearing to be too greedy! Corporatising a cost centre like Infraco was a brilliant accounting trick. But it is an ace that once played, cannot be played again. So I would not read too much in to that spectacular normalised growth figure at Telstra over four years of 52.1%.


discl: hold SPK and TLS, but a lot more of the former