What Is Befalling In The Telecom Space Of Australia?

What Is Befalling In The Telecom Space Of Australia?

The telecommunications industry has evolved in Australia over time, with the government driving the development and inculcating necessary regulations. Healthy competition has provided a series of options to users, for both personal and business use. The transition has been in sync with the global technological advancements and has accelerated from the utilisation of telephones and radios to television and computers and the most recent being the much anticipated the 5G Boom.

In this article, let us look at the two Australian Telecom giants, Telstra Corporation Limited and Vodafone Hutchison Australia, who have been the talk of the town. Before diving into it, it is important to note that Telstra is the biggest telecommunication entity in the Australian region. Vodafone Hutchison Australia is a 50:50 joint venture between Vodafone Group Plc and Hutchison Telecommunications (Australia) Limited (ASX: HTA).

Telstra’s view of the NBN

Telecommunications carrier Telstra Corporation Limited (ASX: TLS) had conducted a briefing in relation to its market release on 29 May 2019, wherein CEO, Andrew Penn had mentioned that one of the significant developments in the telecom market over time, was the establishment of the NBN (National Broadband Network), which is regarded as the largest infrastructure project in Australia’s history. A national wholesale open-access data network project, it aids retailers enter into agreement with the NBN to access the network and selling off the fixed internet access to consumers.

According to Mr Andrew Penn, approximately 63 per cent homes in Australia are presently connected to the NBN. As part of the company’s plan to migrate part of it into the NBN, TLS had been reducing 8,000 FTEs, which was a challenging change to go through. He further added that the company would effectively offset the incremental costs that would crop up in this migration process.

Telstra in a rift with the NBN?

According to the latest media reports, TLS has asked NBN to lower the existing wholesale prices with a caution of customers moving towards a wireless alternative, is doing rounds in the Australian telecom space. Speculations are rife with NBN connection prices to rise by approximately $10 on a monthly basis, driven by the increase in the demand for data bandwidth, and had urged TLS to call upon NBN. NBN had recently launched a wholesale pricing review and asked retailers for their feedback.

TLS feels that if wholesale prices generate zilch margin for retailers, the sector would be unsustainable with high retail prices, less competition and the evading of NBN, routing users to switch away.

NBN, on the other hand, does not agree with the unsustainability being pointed out, as it challenges the government’s need for the broadband networks to pay for themselves, amid any retailers’ obvious wish to obtain inexpensive services.

Telstra’s Stock Performance on ASX:

Listed on the Australian Securities Exchange since 1997, TLS’s stock was valued at A$3.970, up by 0.506 per cent relative to its last relative price, after the end of trading hours on 31 July 2019. The market capitalisation of the company is A$46.98 billion, with approximately 11.89 billion shares outstanding. With an annual dividend yield of 3.16 per cent and a P/E ratio of 15.13x, the stock has delivered a YTD return of 43.96 per cent. In the last one, three and six months, the returns have been 3.13 per cent, 16.86 per cent ad 25.01 per cent, respectively.

With the reporting season almost here, it would be interesting to watch the course of actions taken by the telecom giant and decipher the future unfolding of the overall telecom industry.

Vodafone incurs losses in 1H19

The 4G mobile network which covers over 22 million Australians, Vodafone Hutchison Australia (VHA) reported a loss before tax of more than $150 million for the first half of 2019, which was up by $60 million on pcp. An addition to the distress was the loss of almost 1,000 customers, even when the total network customers increased. The revenue fell by almost $30 million in the six months ending 30 June 2019.

Increased data allowances, government decisions and a change in global accounting standards are being labelled as the probable cause of these losses. However, the company was successful in maintaining high level of customer satisfaction and recorded fewer complaints in the period. On the positive end, EBT, depreciation and EBITDA were up by approximately 14 per cent and was recorded at more than $584 million, compared to pcp.

Even with the losses incurred and while the market waits for VHA to report a profit after almost a decade of establishment, the company remains optimistic about its performance and stated that pleasingly stated that it had maintained its customer base amid issues.

Vodafone and TPG merger remain intact

Amid the terse financials circling VHA, the company announced that it was committed towards its merger with TPG Telecom Limited (ASX: TPM). The Australian Competition and Consumer Commission (ACCC) had expressed concerns about the mergers of TPG and VHA on grounds of competition concerns. The ACCC had stated that removing TPG as a new independent competitor with its own network in the concentrated market would lessen the competition and the merged TPM-Vodafone would not have the incentive to operate in the same way.

However, on 24 May 2019, after a series of legal stances regarding the merger, VHA filed a statement of claim with the Federal Court to seek approval for the proposed merger with TPM. The company believes that the new entity would compete aggressively in the mobile market and upsurge VHA’s ability to invest in networks, new technologies, and competitive plans and products for Australian consumers. The court proceeding for the same would most likely commence in September 2019.

Both the parties have agreed to extend the term of the Scheme of Agreements documents to 31 August 2020, providing ample time to the Court to derive a conclusion for the merger to be accomplished.

Amid the volatile uncertainty hovering over, the much anticipated merger remains to be a challenge for VHA with the ACCC opposing the deal even in May 2019, the company firmly believes that it would prove, to be in the best interest of competition and consumers, especially in an era where the globe is welcoming the 5G Boom with open arms. It should be noted here that in the giant tripod of telecom in Australia, which comprise of VHA, TPM and Optus, the latter two companies have already begun constructing their 5G networks.

TPM’s Stock Performance on ASX:

Listed on the Australian Securities Exchange since 2001, TPM’s stock was valued at A$6.980, down by 0.286 per cent relative to its last close, after the close of trading hours on 31 July 2019. The market capitalisation of the company is A$6.49 billion, and it has approximately 927.81 million shares outstanding. With an annual dividend yield of 0.57 per cent and a P/E ratio of 26.520x, the stock has delivered a YTD return of 11.29 per cent.

Further, the market experts and investors are waiting for the course of action related to VHA and TPM and would be keen to tap the stocks of the new entity, as and when created to rap the benefits that VHA is hopeful for.


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