What is the Secret Sauce for Communication Services Players -Telstra and Vocus?

Communication services and infrastructure in an economy are considered as fundamentally crucial for economic and social development of a country as they help to facilitate and improve productivity across all sectors.

Communication services and infrastructure are also an imperative element for daily human lives as well as standalone organisational operations. Communication sector across the globe is currently undergoing a rapid transformation with a highly dynamic environment majorly shaped by technological advancements.

Undoubtedly, innovative ecosystems and economic growth rest on one of the pillars which is advanced communication networks. Moreover, the impact and efficiency of public and private investments are highly dependent on high-speed communications, which is governed by the present-day broadband network.

Other elements that constitute the infrastructure of the whole economy like buildings, roads, transportation systems, health and electricity grids are all complemented by the investment in broadband services.

Currently, with technological advancements like IoT and artificial intelligence, we have started seeing a new phase of these infrastructural innovations which are smart and energy-efficient, assist with aging, improve safety and help adapt to new ideas.

Funnelling down to the Australian communications sector; we cannot ignore the fact that the Australian communications sector is going through a phase of momentous transformation and is undergoing major structural changes, and consumer preferences for, and use of, communications services are no longer constant.

The technological changes like 5G, artificial intelligence, Internet of Things, etc. are becoming increasingly integrated into the communications ecosystem and the communication sector players are relying more on these technologies for providing innovative solutions to the users.

Want to know more about how 5G can drive the revolution in the communications sector?

Well, read through the findings from The Bureau of Communications and Arts Research given below:

  • Economic Front
  • 5G is likely to have a positive effect on productivity growth across the Australian economy;
  • Initial estimates suggest that 5G could add up to $2,000 in gross domestic product per capita at the end of the first decade after the rollout;
  • Industrial Enhancement
  • Telecommunications-intensive Australian industries, like the Information, Media and Telecommunications, Arts and Entertainment, Education and Wholesale and Retail sectors, are well placed to take advantage of 5G services.
  • Consumer well-being
  • Additional choice and reduction in costs driven by 5G-enabled technology is likely to improve the well-being of consumers and households;
  • Enhancement to technology
  • The economic impact of 5G shall be determined by the extent to which it is an improvement over previous mobile technology, or if it is a general-purpose technology that is associated with industrial revolutions;
  • Australia’s Stance
  • Australia looks well-positioned to make the most of 5G technology, and its use of telecommunications-enabled goods and services ranks well in comparison with the US, Canada, Germany and South Korea;

It is not only the private sector players that are involved in creating a technology-driven ecosystem and adding value to the telecommunication services in Australia, but the Government too seeks to build an environment that propels Australian telecommunications industry to be at the forefront of propagating the plus points of 5G across the economy.

Communications giant Telstra Corporation Limited (ASX:TLS) is proud of its leadership in 5G technology and is a global leader as well. The company is gaining a competitive edge over other communications giants through technological advancements with ongoing 5G rollout that has reached 32 cities nationally.

Moreover, the company is on track to deliver its 5G services to a minimum of 35 Australian cities and major towns by the end of the current financial year.

According to Telstra:

  • Over 100,000 5G capable devices are now connected and around one in four Android mobile handsets have been sold since July 2019 are said to be 5G compatible;
  • TLS has six 5G devices available to its customers including the Samsung Galaxy A90 5G, Oppo Reno 5G handsets and looks forward to launching the second generation 5G handsets soon;

Other than 5G and on the Internet of Things technology front,

  • The company has also proven the technology to expand its narrowband-IoT coverage to nearly 4 million km2 from over 3.5 million km2;
  • CatM1 IoT coverage of TLS spans to around 3 million square kilometres;

As the company enters the year 2020 with the dawn of 5G, Telstra believes that it is on the verge to enter a whole new world of exciting opportunities in technology and telecommunications.

The company’s results are in line with guidance and market expectations and indicate the significant changes underway across the sector.

Telstra’s T22 strategy improves the company’s positioning as a simpler and more digitally enabled business with a strong balance sheet coupled with the skills and capabilities required for achieving success.

Another player in the communications sector with a strong belief that the industry focus continues to be on 5G is Vocus Group Ltd (ASX:VOC).

As a well-positioned Australia’s specialist fibre and network services provider, Vocus is set to benefit from NBN Co’s altered approach in the enterprise market, which is expected to make economical use of current fibre infrastructure.

The company’s strong momentum in New Zealand, with growth in both the consumer and enterprise markets, validates the improvements in operating leverage, producing revenue growth from lower headcount and overhead costs.

Vocus lays emphasis on the facts

  • the digitisation, automation, artificial intelligence, machine learning and 5G are all boosting the demand for data connectivity and high bandwidth consumption; and
  • hyperscale cloud companies are consuming significant capacity across Australia and into Asia along with large enterprises increasingly adopting private and public cloud;

With the above in place, it is expected that the demand for diversity of supply across multiple providers of network services shall continue growth in order to satisfy upcoming growth opportunities.

Growth in Vocus Network Services During 1HFY20 (Source: Company's Report)

Back in December 2018, Vocus had signed up with Optus to drive growth in a 5G future through the implementation of renegotiation and a five-year extension of its current Mobile Virtual Network Operator (MVNO) agreement with Optus Wholesale which included access to the Optus 5G network and future technologies.

Fast-forwarding to today; Vocus strongly believes that the Optus MVNO arrangement offers a direction to 5G and fixed wireless broadband further extending the mobile product offering.

For FY20, expectations of Vocus remain in line with the earlier guidance that estimated Underlying EBITDA to be between $359 million to $379 million and Capex (ex ASC) to be between $200 million to $210 million.

Recognising the dire need of advancing on the technological front in the competitive environment and developing competency, Vocus looks forward to placing increased focus on strategic partnerships with major technology players in order to spread its coverage and branding, importantly in product areas such as public cloud, SD-WAN, and voice and collaboration.

Stock Performance

The TLS stock closed the day’s trade on 20th February 2020 in the green zone gaining 1.067% and settled at a price of $3.790 with a market capitalisation of $ 44.6 billion, while the VOC stock settled at a price of $3.610, down 0.551% intraday, with a market capitalisation of $2.25 billion.

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