TEL v TLS

[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-

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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....