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.

[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

[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/cha...375&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?