TLS

[sharer]

TLS is at least a 10 year low on the ASX, its just getting hammered (particularly in 2010 which is interesting).

With the Labour govt promising ultra fast broadband and TLS the likely recipient of the dosh, is a rerate coming?

Dividend already gone for the year unfortunately

You can see the chart at the bottom of this page ... I'm being lazy

As Tracker's chart failed to appear, i'm offering a slightly different one, which might not inspire anyone with dreams of gold from either TLS or TEL :

Attachment 2953

By the way, the recent dumping of a huge parcel of TLS by one of the big Oz Funds must have something to do with the sharp decline in TLS price over past few weeks.

[upside_umop]

It is envitable that the telco's in their current form will underperform. I have really only two things to say about telco's such as tel and tls...:
1) They should never have been listed, and;
2) The lines network they hold should be sold back to the government.

[trackers]

Sounds good guys, cheers. I wouldn't touch TEL with a barge pole but thought maybe TLS was a different story with broadband rollout etc.

Phone lines won't exist soon enough (we've just ditched ours for naked dsl + voip and are receiving the same service minus the $50 a month line fee), and I guess the mobile and broadband markets are fairly fragmented...

[lissica]

Avoid like the plague. Internally Telstra is a complete mess, let alone external influences.

Agreed, I don't hold too much optimism for it's future in the very long term. From memory it used to be the biggest stock on the ASX?

But then, so many people are bearish on TLS right now that I have it on my watchlist as a contrarian thing.

[lissica]

lissica, sometimes a dog is just a dog :-)

What if it's a really really cute one with puppy dog eyes?

Aww.....

^_^

[Snoopy]

What is Telstra and what are their chosen markets?

The name "Telstra" is derived from the words 'Telecom' and 'Australia' (TEL from Telecom and STRA from Australia). Telstra traces its roots back to 1901 at the time of Australian Federation. The Postmaster General's Department of the time was established by the Federal Australian Government to manage all domestic telephone, telegraph and postal services. Subsequently it merged with the Overseas Telecommunications Commission formed in 1946 to manage international telecommunications services.

Telstra first became a publicly listed company in November 1997. Telstra was progressively privatised (33.3% 1997, 16.6% 1999, 33.3% 2006, with 17% transferred to the 'Future Fund'. Today Telstra is still Australia's leading telecommunications company, serving a diverse range of customers: small business. large enterprise, government organisations and -of course- ordinary consumers. The 'product ranges' covered by Telstra include:

i/ Mobile: Prepaid and postpaid mobile services, handset sales, mobile broadband, internet of things (IoT), and wholesale services providing Mobile Virtual Network Operations (MVNO) to third party mobile market players.

ii/ Fixed (Consumer & Small Business): Telstra is in a process, (close to completion) of handing control of their legacy copper network, and some early technology fibre, over to 'the nbn', a state owned and controlled 'National Broadband Network'. In instances where the former Telstra fixed network overlaps the nbn fibre network, the older network may be retired or alternatively integrated into the new nbn 'parent network'. Meanwhile the fixed network contains legacy voice and broadband. But it also includes income from online business apps and services, gaming services (exclusive Australian access to the Xbox All Access on line gaming platform), pay television (Foxtel subscriptions- including Kayo sport) and SVOD (subscription video on demand- including Kayo 'one off' Sporting Events).

iii/ Fixed Enterprise: Data and connectivity and traditional calling applications are the base products. In addition Network Added Services (NAS) for these larger business and government customers are available. NAS includes cloud applications, equipment sales, professional services (including infrastructure builds and digital transformation projects) and managed services. Security services, as an over-layer above other applications, are a 'growth area'.

iv/ Fixed - Active Wholesale: Largely data and connectivity to third party retail players on the legacy Telstra network, prior to that part of the network transitioning to nbn.

v/ International: Providing international services (including legacy international toll calls) with international assets, and now including Digicell's South Pacific business (Acquired July 2022). Digicell Pacific is a leading provider of communications services across Papua New Guinea (PNG), Fiji, Nauru, Samoa, Tonga, and Vanuatu. The international division also owns Telstra's share of the different sub-sea intercontinental telecommunications cables that connect Telstra to the rest of the world.

vi/ InfraCo fixed: This business unit involves the design, construction, operation, maintenance, and the relocating and rationalising/decommissioning of passive infrastructure assets: Legacy copper line assets (but with some HFC (Hybrid Fibre Co-axial) older technology fibre thrown in too), ducts, pits tunnels, poles and certain fixed network sites (including data-centres). It also contains ongoing income related to the 'DA' ('Definitive Agreement' with nbn). One off DA income includes receipts for disconnecting customers from the legacy Telstra network, and one off receipts from customers connecting to the nbn network. To counter that reducing income stream, recurring DA income from nbn includes payment to access Telstra owned ducts, racks and fibre. One important category of infrastructure hardware -not under the wing of InfraCo- are the mobile network towers.

vii/ Amplitel: This is a special purpose infrastructure vehicle, now only 51% owned by Telstra, that constructs, maintains and upgrades for new services (like 5G) -what was formerly the 'fully owned in house'- Telstra mobile tower network.

viii/ Other: This includes 'Telstra Health' (digital health infrastructure for health providers, and software solutions for the same), 'Telstra Energy' (a retailer of electricity bought from third parties, in what looks like a mechanism to offer 'one party utility billing' for customers who want that) and 'Telstra Purple' (offering adjacent technology for existing Telstra network capability). One product from 'Telstra Purple' called "Branch Offload" will use a range of technologies, including Telstra’s 5G and fixed connectivity, Microsoft Azure (a cloud computing platform) Stack Edge (Microsoft Azures cloud storage gateway) for edge computing (Note 'edge computing' is a term used for processing time sensitive data), Secure Edge (provides users with consistent and secure access), SD-WAN (Software Defined Wide Area Network) and service orchestration. And all of this is delivered as a managed service from 'Telstra Purple'.

ix/ Equity Investment Telstra is joint owner (35%), together with Newscorp (65%) of NXE Australia, trading as Foxtel, a pay TV operator. Foxtel operates using cable television, satellite television, and IPTV (Internet television) operator. What does the name mean? "Fox" represents News Corporation's 'Fox Network Television' and "Tel" representing Telstra. Foxtel transmits its cable service via Telstra hybrid fibre-coaxial (HFC) cable into the Brisbane, Sydney, Melbourne, Adelaide and Perth metropolitan areas, along with the Gold Coast. Foxtel's satellite service covers the rest of Australia. Foxtel on Mobile launched on Telstra's Next G Network in late 2006. Netflix is the market leader in pay TV in Australia (December 2019 figures, Roy Morgan) with 11.9 million subscribers. At the same date Foxtel had 5.5million subscribers. Third in this market is Australian-owned Subscription TV service Stan, which is now accessible by more than 3.3 million Australians. Stan is a fully owned subsidiary of the Nine Entertainment company.

SNOOPY

[Snoopy]

Who are Telstra's competitors in their chosen markets?

1/ Optus

In 1991 Optus became Australia's second general communications carrier. Optus is now a wholly owned subsidiary of Singaporean telecommunications company 'Singtel'. Optus has wholly owned subsidiaries, such as Uecomm in the network services market and Alphawest in the ICT services sector. Through its Optus 'Yes' brand, it provides broadband, and wireless internet services. Wholesale services include Satellite and 4G Mobile.

Optus was briefly listed on the ASX between late 1998 and 2001, at which point Singtel bought out minority shareholders.

Optus is divided into four major business areas –

i/ Mobile: Covers 98.5% of Australia's population, and includes speed leadership in 5G. Yet Optus still see themselves as a 'challenger brand' . Optus was allocated, over FY2022, new licences for the 26GHz spectrum band and the low band 900MHz spectrum through two separate auctions.
ii/ Business
iii/ Wholesale Mobile Virtual Network Operation (MVNO) for downstream mobile retailers, piggy backing on the Optus network..
iv/ Consumer & Multimedia: including 'Optus Sport' (principally mens and women's international soccer, including the upcoming world cup in NZ) , SubHub to consolidate 'customer streaming subscriptions' (and incorporating discounted bundling), and 'Smart Spaces' which enables WiFi connected stereos (as an example) and allows WiFi activated home lighting and even digital doorbells linked to security cameras.

2/ TPG Telecom

TPG Telecom Limited, a renamed 'Vodafone Hutchison Australia' (VHA), after these two players merged in 2009. The company was rebranded again following another merger with TPG - formerly Total Peripherals Group- (TPG merger granted in 2020). TPG Telecom is one of three nationwide Australian telecommunications network owners. TPG were also the purchasers of our own Telcom NZ's failed foray into Australia, AAPT, in December 2013.

TPG Telecom was listed on the ASX in its most current incarnation (was formerly listed under ticker VHA) in June 2020. TPG Telecom operate a number of leading mobile and internet brands including Vodafone, TPG, iiNet, AAPT, Internode and Lebara.

TPG Telecom Limited has four major business units:

i/ Personal : First major telco in Australia to offer G.Fast (faster speeds from a high frequency signal) technology across fibre-to-the-building (FTTB) and fibre to the node (FTTN) technologies.
ii/ Small Office: Mobile voice, fibre internet, nbn Enterprise Ethernet (symmetrical upload/download performance at high speed) and traffic prioritisation.
iii/ Business & Enterprise : Total customer packages. High bandwidth allows 'work from home.'
iv/ Wholesale: 'Vision Network' fixed wireless wholesale broadband business

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

There are only three independently owned nationwide wholesale mobile network suppliers in Australia. So 'by lack of competition' Telstra is automatically in the top three. The reality is even more clear cut than that. Look at the comparative financials table below and you will see that Telstra is clearly the leading market player, in terms of revenue, in the wider 'build and operate your own telecommunications network space in Australia.

Comparative Data	Telstra	Optus (1)	TPG Telecom (2)	Spark (3)
Turnover FY2022	$A22,045m	$A6,686m	$A5,415m	$NZ3,720m
Operating Free Cashflow FY2022	$A3,854m	$A776m	$A1,251m	$NZ841m
EBITDA FY2022	$A7,256m	$A1,950m	$A1,733m	$NZ1,150m
EBITDA Margin FY2022	32.9%	29.2%	32.0%	30.9%
EBIT FY2022	$A2,898m	$A287m	$A344m	$NZ630m
EBIT Margin FY2022	13.1%	4.29%	6.35%	16.9%

Notes

1/ Reference for Optus results: https://www.optus.com.au/content/dam...eport-2022.pdf
Conversion rate For Optus results $S1 = $A1.012.

2/ Reference for TPG Telecom Results https://www.tpgtelecom.com.au/sites/...eport_2022.pdf
Actual declared EDITDA was $A2,135m and EBIT was $A746m. But these figures both include a $402m one off gain on the sale of mobile tower assets (AR2022 p95), which I have removed.

3/ Spark is comparable in structure and function but operates in a different country - New Zealand. I have included the figures here for trans-tasman comparative interest only.


Conclusion: Pass test

SNOOPY

[Snoopy]

The following is an exercise in normalised earnings. The starting point is the NPAT quoted in the income statement. The columnar corrections are then cross referenced by table header to the individual notes below. Lastly the corrected normalised NPAT is divided by the number of shares on issue at the end of the financial year to get 'earnings per share'.

Note Number

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

No. Shares

eps

FY2022:

[$1,814m-0.7(

$165m

-$61.6m

+$80m

+$47m

-$125m

-$58m

+$233m

-$71m

+$32m)]

/11,554m=

14.2cps

FY2021:

[$1,902m-0.7(

$275m

+$802m

-$180m

-$211m

-$103m)]

/11,893m=

12.6cps

FY2020:

[$1,839m-0.7(

$420m

+$1,536m

-$36m

-$94m

-$308m

-$259m

-$133m)]

/11,893m=

8.8cps

FY2019:

[$2,149m]-0.7(

$687m

-$493m

+$1,613m

-$801m)]

/11,893m=

12.1cps

FY2018:

[$3,557m-0.7(

$930m

-$273m

+$1,779m

+$299m)]

/11,893m=

13.8cps

Notes

1/ Asset Sales & Sale and Leaseback Consequences
Gains in profits from a combination of:
i/ Net gain on disposal of Property Plant and Equipment and Intangible Assets.
ii/ Disposal of businesses and investments.
iii/ Gain on sale of leasehold transactions (sale and leaseback of exchange property)
....have been removed from the respective profits as follows: $165m (FY2022), $275m (FY2021), $420m (FY2020), $687m (FY2019) and $930m (FY2018). (See respective annual reports, note 2.2)

For FY2021, 'leasehold transactions' including the sale and leaseback (for a 10 year period) of the 16 story Pitt Street Telephone exchange building in downtown Sydney . The company received $262m for the sale of this building, which equated to a $102m net gain once the sale and leaseback arrangement was agreed to (AR2021 p113). Businesses disposed of over FY2021 include 'Telstra Velocity' (a regional high speed broadband provider), for a $60m gain after sale and leaseback, an e-commerce platform for $45m profit, and Telstra's minority interest in Sensis (owns White pages and Yellow pages and is responsible for Telstra directory service call centres) for a net gain of $1m, after accounting for a $34m impairment loss write down.

2/ Impairments in Income Statement
Telstra annually identifies 'impairment expenses' that form part of 'other expenses' in the income statement. While a company the size of Telstra can expect some impairments in normal business operations, some extra large impairments are highlighted. So I am adding these extra large detailed impairments back into each result, where appropriate, but not 'deferred contract costs' which unfortunately seem to be an ongoing cost of doing business. The specific information referred to below may be found in section 2.3 of the respective annual reports.

For FY2022 the impairment was $144m, (including $107m of deferred contract costs) - no adjustment made. For FY2021 the impairment was $162m (including $113m of deferred contract costs added back, but not including the $34m of impairment on the sold 'Project Sunshine holding' (Sensis stake) that I have already accounted for under note 1/.) - no separate adjustment made. Over FY2020 total impairment losses of $129m, include $124m of deferred contract costs - no adjustment made.

But over FY2019, as well as impairing $100m in deferred contract costs, Telstra impaired their legacy IT assets as a result of "making good progress in standing up our new IT platforms" (AR2019 p23) to the extent of $493m (AR2019 p29). I was concerned that I might be 'double counting' this IT platform restructure, given the very large T22 (for plan 'Telstra 2022') restructuring costs already declared under note 12. However if I go to p9 in AR2019:
"We are ahead of plan in our direct workforce reductions. The decision to accelerate these changes was made by carefully and deliberately to, in part, provide our people with certainty about their future. This resulted in an increase in Telstra's forecasted total restructuring costs from around $600m to approximately $800m."
If the IT asset costs were included in the $801m figure, that would mean labour restructuring costs over FY2019 were: $801m-$493m= $308m. Over FY2020 the comparable labour restructuring cost was $253m, but this was over a 8 month period. (From AR2020 p5: "In March we put all job reductions on hold for six months to give our people certainty over this difficult (pandemic) time.")

This means that if the FY2019 $801m transition charge, over the largest restructuring year, did include an IT equipment write off, then the labour cost on a 'per month basis' would have been less than the subsequent lesser restructuring year. From this I conclude the $801m 'extraordinary restructuring' charge was labour only, and the $493m IT write off was a separate charge. This $493m hardware/software impairment I have reversed.

From AR2018 p67 "During the period, there was a total impairment loss of $327 million related to goodwill and other non-current assets, of which $273 million related to Ooyala Holdings Group."
Over FY2018 Telstra wrote off $273m of their remaining goodwill from their investment in Ooyala Holdings Group, a video streaming platform, when it was sold back to the founders. I have reversed this one off write off.

3/ Retail Chain brought 'in house'
Goodwill write off over five years, starting from FY2022, through integrating independently owned Telstra Retail stores added back as a wholly owned Telstra business unit: [$92m + $216m]/5= $61.6m/year (AR2022 p148).

4/ Bond rate change on short term employee liabilities
$80m is listed as EBITDA from the positive impact of bond rate changes on employee liabilities (AR2022 p25). The same section in the previous annual report identified an "impact of bond rate movements on leave provisions," that was unquantified (AR2021 p23). I had originally thought the $80m was a superannuation scheme adjustment. But the superannuation scheme adjustment for FY2022 was $149m and not recorded in the income statement (AR2022 p77). Instead this $149m change was recorded in the 'statement of comprehensive income' (AR2022 p78). I therefore believe the $80m does not relate to superannuation provisions. Therefore I have removed the $80m bond rate adjustment as a rare one off effect.

5/ Catch up revenue from previous years
$47m of 'catch up adjustments to revenue' have been removed from EBITDA for FY2022 (AR2022 p29 & p25)

6/ Amplitel (Tower Company) sell off costs
$125m of costs related to the partial spin off of Amplitel have been written back
over FY2022 (AR2022 p25), including $76m of stamp duty (AR2022 p29)

7/ Acquisition Integration costs
$58m of integration costs related to the acquisition of 'MedicalDirector' and 'Powerhealth' expensed over FY2022 have been written back (AR2022 p25, p147).

8/ nbn transformation payments (net)
The federal government via nbn has been, year by year, 'buying out' the existing Telstra owned largely copper network via annual payments. The rolling network buyout payments have been recorded in the income statement as part of the total under 'other income'. This buyout process is now winding down. These payments were legitimate income 'in the day'. But it is my belief that to give an informed comparative picture of the business going forwards, these payments should be removed from 'normalised income'. One off NBN income that I have removed from my 'normalised results' amounts to: $233m (FY2022), $802m (FY2021), $1,536m (FY2020), $1,613m (FY2019), $1,779m (FY2018) (Refer post 20 for supporting calculations).

9/ Covid-19 one off adjustments
Over FY2021 Telstra encountered $180m of Covid-19 headwinds (AR2021 p9) that may have included labour outsourcing and onerous rental leases. They then seemingly contradicted that by saying "Underlying EBITDA includes an estimated $380m million impact from Covid-19 (AR2021 p19). I have reconciled the two figures by noting that under the comment on mobile revenue (AR2021 p22) there was a decline in $200m from international roaming revenue: $180m+ $200m = $380m. Because Australia's borders were closed and hugely restricted over Covid-19 times, this reconciliation makes sense to me. However there were other operational effects of Covid-19, including greater use of working at home and video conferencing that equated to higher broadband usage. These change in use effects would somewhat offset the loss of income from international roaming. For this reason I believe the best measure of numerising the Covid-19 impact on Telstra is to use the $180m figure to adjust for non-recurring Covid-19 effects over FY2021.

Over FY2020 Telstra added a special one off Covid-19 bad debt calculations allowance of $36m (AR2020 p29)

I have reversed both the FY2020 and FY2021 Covid-19 adjustments.

10/ Bush Fire relief and bad retail practice compensation][
Over FY2020 Telstra set aside $44m to contribute to bush fire relief and $50m to cover mis-selling by third party agents, inappropriate mobile contracts to indigenous people. I have reversed both of these making a total adjustment of $44m.

11/ Equity accounted NXE write off
Over FY2020 Telstra wrote off $308m of the value in their equity accounted investment in NXE Australia, which trades as Foxtel (AR2020 p166). This one off capital adjustment does not affect operating performance, so I have added it back.

12/ Strategic Focus T22 Program
On 29th June 2018, Telstra announced their T22 strategy: to simplify both operations and the company's product set, improve customer experience and reduce the company cost base. These changes are well over and above what would be considered as 'run of the mill' restructuring. Costs incurred are in excess of 'business as usual' redundancies for the period and are recorded as follows: FY2019 $801m, FY2020 $259m, FY2021 $211m and FY2022 $71m.

13/ Equity accounted NXE write back
Over FY2018 the Telstra stake in Foxtel was brought back into the company accounts as outlined in AR2017, p127. This relatively complex process unfolded as follows:

i/ As of 01/07/2017 (the beginning of the FY2018 financial year), 'Foxtel' was valued at nil on the Telstra books due to Telstra's cumulative share of equity accounted losses exceeding the carrying value on the books.
ii/ On 28/09/2017 Telstra's outstanding loan balance to 'Foxtel' was converted into equity, resulting in a $38m value gain being recognised under 'other income'.
iii/ On 03/04/2018 'Foxtel' merged with 'Fox Sports Australia' (externally owned by Newscorp), to form a new entity 'NXE Australia', with Telstra becoming a 35% shareholder in this new merged venture. Telstra's share of 'NXE Australia' resulted in the recognition of a $261m profit gain recognised in 'other income'.
iv/ As a result of ii/ and iii/, I have removed a total of: $38m + $261m = $299m of before tax profit from the FY2018 result.

14/ Lease accounting policy adjustment
IFRS16, called AASB16 in Australia, requires that leases become capitalised 'right to occupy' assets that are then depreciated over time. This reporting rule change was brought in for FY2020 and onwards reporting. I have reversed out this reporting change so that profits from FY2020 onwards are more comparable with previous years. This change has resulted in NPBT decreasing by $133m (FY2020) and $103m (FY2021) but increasing by $32m over FY2022 (for detailed calculations refer post 26).

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

Conclusion: Two years down, but only one allowed. FAIL TEST

SNOOPY

[Snoopy]

I am still painstakingly going through the Telstra accounts. On my second pass through FY2022 something stood out.

"Underlying eps was up 48.5% to 14.4cps" (AR2022 p20)
"The Telstra board resolved to pay a fully franked dividend of 8.5cps, bringing the total dividend for the year to 16.5cps" (AR2022 p21)

I realise that Telstra have been in a special situation over the last few years. Unlike New Zealand where the old Telecom NZ split into the 'network' Chorus and 'retail' Spark business, Telstra has gone down a different path. Telstra has entered a long term agreement, "the DA" (definitive agreement), to sell over many years their own legacy copper network, and some older tech fibre, to 'nbn', the state owned national broadband network in Australia. These network asset sales are being booked as 'other' profit, with most of the proceeds being paid out to shareholders as dividends as the 'profits' come through.
"our commitment to return in the order of 75% of the net one off nbn receipts to shareholders via fully franked special dividends to the end of FY2022." (AR2022 p21)

However this process has come to an end.
"The FY22 special dividend will be the final special dividend linked to one off nbn receipts." (AR2022 p21)

It seems incredulous to me that the Telstra board are raising dividends well in excess of underlying earnings, yet are somehow able to keep the dividend fully franked. I should note that Spark in New Zealand seem to be doing the same thing, paying out more in fully imputed dividends than they earn. Maybe there is some internationally recognised telecommunications industry accounting trick that I am missing which allows this to happen? But taking the underlying earnings and dividend numbers at face value, it looks like Telstra (and Spark) shareholders will both be looking at sharp cuts to their dividends in the near future.
"The final dividend represents a 115 percent payout ratio on FY2022 reported earnings and is well supported by free cashflow." (AR2022 p21)

As far as I am aware, 'free cashflow' above earnings does not deliver franking credits. So 'cashflow' cannot explain why the dividend can remain fully franked. What am I missing?

At least in the case of Telstra they said this FY2002 paid dividend included an increase in the ordinary dividend to 13.5cps. I read that as saying that 16.5cps - 13.5cps = 3cps of annual dividend will go sooner rather than later (AR2022 p21).

SNOOPY

[Snoopy]

The federal government via nbn has been, year by year, 'buying out' the existing Telstra owned largely copper network via annual payments. The rolling network buyout payments have been recorded in the income statement as part of the total under 'other income'. This buyout process is now winding down. These payments were legitimate income 'in the day'. But it is my belief that to give an informed comparative picture of the business going forwards, these payments should be removed from 'normalised income'.

1/ Line Migration Revenue Part 1: Network disposal compensation to Telstra

Telstra has been receiving money, -in effect from the federal government-, to dispose of their legacy fixed line network to the federal government owned nbn (National Broadband Network). This money is classified as an IOP or 'Infrastructure Ownership Payment', and is made under the ISA or 'Infrastructure Services Agreement' with nbn (the National Broadband Network). These IOP payments (5) are classified as part of 'other income' in the Telstra income statement. This 'annual IOP (payment)' is itemized in note 2.2 of each of the last few years of annual reports under "disconnection fees".

2/ Line Migration Revenue Part 2: End line customers billed by Telstra to move to nbn

However, on top of the 'network disposal money' received, Telstra charges their customers to move from their existing network arrangements to 'nbn', under the description 'one-off income we receive from customers to connect to nbn' (e,g. AR2022 p25). These customer 'disconnection from legacy and connection to nbn' fees (column 1 in the table below) are not distinctly disclosed. However it is possible to work them out by subtraction, taking the 'total nbn income' (table column 3) and subtracting from that, the component paid by nbn (table column 2).

The 'total nbn income' may be found at the front of the respective annual reports in the "Full year results and operations review.", in the 'Product Income' table (AR2021 onwards). (I cannot find this information directly in earlier reports. However, it can be calculated by adding columns 4 and 5 in the table below).

End of the line migration process

Both of the above two income streams are set to become less important over time.
From the FY2019 annual result presentation, slide 5
"We expect one off nbn DA (for Definitive Agreement revenue) and nbn 'costs to connect' to reduce to zero over time as migration to nbn completes."

Normalising Telstra Revenue

Since these income streams are non-recurring for each customer, I need to take the total nbn migration revenues off the total revenue, to normalise the revenue (and hence income) figures.
If we are to remove a stream of income, it follows that we should also remove any expenses that are specifically incurred in earning that income stream. Thus we have the latter two columns of the table. There is no depreciation, amortisation or interest charges set off against these payments. So in this instance 'Change in EBITDA' = 'Change in NPBT'. This so called 'Removed EBITDA' may be found in the Reference Tables towards the end of each respective report (back to AR2020) in the 'Underlying EBITDA' calculation table. It is described as 'Net one off nbn receipts'.

nbn transition Telstra income & expenses	Customer Connect fee to nbn (calculated)	plus DA agreement (1) payments from nbn	equals Total nbn Income	less One off DA (1) & nbn Cost to Connect (C2C)	equals Removed EBITDA (2)
FY2022	$49m	$329m	$378m	$145m	$233m
FY2021	$28m	$1,022m	$1,050m	$248m	$802m
FY2020	$283m	$1,721m	$2,004m	$468m	$1,536m
FY2019	$505m	$1,611m	$2,116m	$503m	$1,613m
FY2018	?	$1,779m	use $2,297m	$518m	use $1,779m (4)

Notes

1/ "DA agreement" is the so called 'Definitive Agreement' that outlines how Telstra will transition from their "in-house legacy network" to the government owned nbn or 'national broadband network.' Otherwise known as 'nbn disconnection fees', they are listed under 'other income' in AR section 2.2. There is a cost incurred to Telstra in facilitating this transition (fourth column in table above). These costs may be found in the breakdown of 'operating expenses' in the "Full year results and operations review" section at the front of each report.

2/ The 'Removed EBITDA' figure is from the underlying EBITDA calculation found in the 'Reference tables' at the back of each annual report. The figure I have used is 'Net One off NBN Receipts' which is more finely defined as 'net nbn one off Definitive Agreement receipts, consisting of Per Subscriber Address Amount' (PSAA) and Infrastructure payments, offset by the nbn cost to connect expenses.

3/ Telstra use the term 'nbn headwind'. This is the net negative recurring EBITDA effect on the business ($650m over FY2021). By 'net' Telstra are offsetting the recurring revenue from nbn under the DA for access to Telstra facilities, against the wholesale supply money that Telstra must pay to access the nbn network. The full equation for FY2022 is:

	FY2022
Recurring nbn DA	$20m
add Reduction in legacy (Telstra owned) asset access costs	$50m
less Network Payments to nbn	($110m)
less Wholesale earnings legacy decline	($120m)
less Retail decline attributable to nbn across Fixed, C&SB and Fixed Enterprise	($180m)
equals Total	($340m)

4/ I have been listening to the 2019 investor day presentation which may be found here.
https://liunanedu.com/investor-presentations.html
https://www.telstrawswitchoverww.com...-presentations. The discussion Q&A sessions lead by CEO Andrew Penn has given me a solution to filling in the missing FY2018 information from the table above.

I had been puzzling why the 'customer connection fee' bore little relation to the amount of business in dollars transferred. CEO Andrew Penn explained that as nbn rolled out along each road, it was the retail homeowner customers that tended to connect first. Why was that? I believe it was because business customers were more likely to buy 'upskill packages' connected to their fixed line telecommunications account. A business typically does not just unplug a copper port and connect to a fibre one. Rather, a business has to integrate security protocols, perhaps a connection to an offsite data centre, specify the bandwidth of their fibre connection at peak load times etc. etc .... This is all complicated by the fact that in certain urban centres, Telstra already have their own fibre cable matrix, operating independently (albeit locally) of nbn. It could be that some businesses (Westpac was mentioned) prefer a 'hybrid connection model'. That means putting their most secure information on their own private data-centre network (owned and run by Telstra), while using nbn to traffic less critical data at a lower price point. That means the transition to nbn for a business can be much more time consuming and costly.

Over FY2022, the 'customer connection fee' was $49m / $329m = 14.9% of the value of business in dollars transferred. But over FY2021 (the last year of significant transfer for retail homeowners) the customer connection fee was only $28m / $1,022m = 2.7% of the total. I was becoming more and more frustrated, not being able to find customer connection fee information for FY2018. But then I had a sudden revelation that I was seeking information from my present viewpoint in 2023. I imagined myself back in 2018 looking for the same information and unable to find it, and then the reason for Telstra 'hiding' the information became clear. Telstra were not hiding the information. They did not report it because 'back then' such information was not important, and maybe not even recorded separately. If you look at FY2019, the first year all the information that I was after was available (albeit retrospectively from the FY2020 report), you will see that the 'Cost to Connect Fee' ($505m) and the actual costs incurred making the connection ($503m) were almost the same. I expect the situation was similar over FY2018. As long as income is only just covering costs, it makes no difference to the overall profitability picture of the company. And furthermore, in the early days of the nbn fibre roll out, there would be no reason to think that a 'network switchover' was a 'profit opportunity going begging'. If the customer connection fee and the background costs to do the job are roughly equal, that means the DA nbn payment received will be a close approximation to the EBITDA (and in this instance NPBT) lost. So although unlikely accurate to the last dollar, $1,779m will be close enough to the real undeclared NPBT lost.

5/ These IOP payments are not to be confused with IAP 'Infrastructure Access Payments', classified as sales revenue. IAP payments are part of a future ongoing income stream to Telstra, as nbn pays Telstra for access to Telstra owned ducts and pits.

SNOOPY