THE DISTILLERY: All about Telstra

Well, we got two contrasting results yesterday: One from Rio Tinto was all about rehabilitation, raised from the dead by China's economic rebound and the iron ore superboom. The other was Telstra, on the way to being a Telco zombie, but suddenly showing new life. Guess which one our covey of commentators chose to focus on this morning?

John Durie wrote in The Australian: "David Thodey has rewritten the rules for new chief executives by spending big early in his term to chase market share in the hope of boosting profits in the long term. One million new customers shows the market share chase is working, but I question whether Thodey can maintain that pace, and more importantly translate the gains into profitable growth. For the last decade profit margins were a key part of any Telstra profit report but finance chief John Stanhope yesterday declared: "We are not so concerned with margins – we are concerned with growing market share."
 
The Australian Financial Review's Chanticleer said today: "David Thodey was not joking when he last year promised to win market share and get Telstra back in the game as a viable competitor in mobiles and fixed-line broadband." And the paper also reported: "Telstra reported its strongest customer growth in a decade, confirmed its guidance for the full year and announced it had reached a key milestone in its negotiations with the government as its interim net profit plunged 35.6 per cent to $1.19 billion."
 
And Elizabeth Knight said in the SMH this morning: "More than ever before Telstra management had to pull a rabbit out of the hat yesterday. It needed to demonstrate to its long-suffering shareholders it had made some progress with its new plan to increase market share in the all-important wireless segment and that it had made some strides in getting closer to a signing a company-transforming deal with the government on the national broadband network. It passed the first test well enough – having signed up almost a million wireless customers (broadband and mobile) in the past six months. On NBN negotiations the progress is still unclear. Telstra has agreed some ''key commercial terms'' but nothing is signed and some largish obstacles remain before the market can feel assured a deal is in the bag."
 
Stephen Batholomeusz wrote on Business Spectator: "Telstra's first half results were, as it foreshadowed last year, not pretty. That's actually positive news because the deliberate decision to sacrifice profitability appears to be at least achieving its first set of objectives. In fact there were two sets of broadly positive news for Telstra's long-suffering shareholders today. Not only has Telstra succeeded in arresting and indeed reversing the continuing declines in its key customer bases, albeit at a significant cost, but it has also finally agreed the terms of its $11 billion (in net present value term) deal with NBN Co and the federal government and will be able to put the proposal to shareholders by mid-year."
 
The Australian's Tim Boreham wrote yesterday on the paper's website: The telco titan is claiming early success on Project New, management's $1 billion effort to staunch the haemorrhaging of customers, with one million mobile and fixed broadband punters signing on the dotted line. The result, says Telstra CEO David Thodey, was "a little bit more than expected”. "Feel-good factor aside, let's not get lulled into thinking that Telstra is fundamentally a growth business. The mobile-broadband growth was offset by the continuing rot in the fixed-line business, which declined a further 8 per cent ($250 million) in revenue. Telstra's key numbers – a 35 per cent profit decline to $1.194 billion and a 13.9 per cent fall in EBITDA to $4.58 billion – were consistent with the telco's guidance, as was the 0.5 per cent decline in revenue, which compared to a 2.5 per cent fall previously."
 
And Malcolm Maiden's initial reaction was upbeat as well, as he wrote on smh.com.au: "Importantly, Telstra maintained its full-year profit guidance this morning, and it also held onto its interim dividend of 14 cents a share, on the way to a payout of 28 cents a share. This is key for many Telstra shareholders, who own Telstra shares for the dividend income it generates. And chief executive David Thodey and chief financial officer John Stanhope reported good signs that the push for higher market share is working, and that the $11 billion NBN deal will soon be clinched. Thodey announced that the group had now finalised key commercial terms with the NBN Co that set the framework for a definitive agreement over a $9 billion deal to co-operate with the rollout of the new fibre network. The terms cover the progressive decommissioning of Telstra's copper wire network as the NBN rolls out, and Thodey says it has also reached an in-principle agreement with the Commonwealth government for a series of side deals associated with the NBN project that are worth an additional $2 billion."
 
Malcolm Maiden glanced at the Rio result and wrote last night on smh.com.au that: "Rio's top-line cash generation was 70 per cent higher at $US23.5 billion in the year to December, and net cash, calculated after interest payments on debt and tax, was 98 per cent higher, at $US18.3 billion. BHP's result next week will be as strong, and there's no end in sight. Profits this year are likely to be even higher as stronger as higher prices for coal and other commodities flow to the bottom line. No wonder Rio boosted its annual dividend by 20 per cent, and announced a $US5 billion buyback. "
 
John Durie looked at the merger mania among stock exchanges and wrote yesterday on The Australian's website that: "All of a sudden, the proposed Singapore takeover of ASX Ltd doesn't seem such a big deal after overnight news that Deutsche Boerse and the NYSE are in advanced merger talks. That proposed deal dwarfed yesterday's news that the London Exchange had proposed to buy Toronto, leaving Nasdaq as the prized candidate for the next marriage. These deals tell you two things – technology has made national borders irrelevant and led global exchanges to fundamentally re-think how they operate. It must be regulated at a national level and the Australian government must impose more conditions than now exist but, fundamentally, Singapore does not represent a national risk. The argument against the deal is that it doesn't take us very far forward, but at least it is a step in the right direction."
 
And fellow Australian scribbler Bryan Frith said: "Two proposed mergers of major stock exchanges – the London Stock Exchange with Canada's TMX and NYSE Euronext with Deutsche Borse – should send a clear signal to the Australian government that it should ignore the naysayers and approve the merger of the Australian Securities Exchanges and the Singapore Stock Exchange or risk losing relevance in global capital markets. And it further emphasises that one of the main arguments being run against an ASX/SGX merger – that it would lead to a loss of sovereignty – is a furphy."
 
Glenda Korporaal wrote on The Australian website: "Today's appearance by Reserve Bank governor Glenn Stevens before the House of Representatives standing committee on economics in Parliament House, Canberra, will be closely watched for the latest indications of the economic outlook. Australia has navigated the financial crisis better than most, but there is a fragility about consumer and business confidence, with this year's weather crises and fires dealing another blow to those hoping for a stronger economy this year. Cautiously optimistic is becoming one of the more overused comments of businesses and forecasters. But there are big differences between those sectors of the economy that are erring on the side of caution and those on the optimistic side." 
 
Fairfax's Adele Ferguson said on smh.com.au yesterday that: "Embattled engineering and contracting group Downer EDI has been whacked with a proposed shareholder class action over allegations it misled the market over its controversial Waratah train project. Litigation funder IMF will bankroll the class action, speculated to be as much as $100 million, alleging the company failed to keep the market fully informed between February 2010 and June 1, when it made a shock $190 million writedown related to its Waratah rail project in NSW, forcing it to miss its profit targets." So what. Shareholders are suing themselves.
 
And The Australian also said that: "Downer EDI chairman Michael Harding and his board took another hit yesterday, with news litigation funder IMF was putting together a class action against the engineering services company for alleged misleading and deceptive conduct and alleged breaches of continuous disclosure obligations in relation to the troubled Waratah train project. However, what was more interesting was Downer's decision to push back its results announcement date from Thursday, February 24 to Monday, February 28."