Ditching Telstra's fixed lines
The revolution in telecommunications is beginning to wear Telstra down, as customers ditch fixed lines for mobiles.
TELSTRA shares tumbled yesterday after the news that its traditional voice business had declined to such an extent that it dragged its total revenue into reverse for the second half of last year.
The decline ''reflects challenging market conditions due to changing calling behaviours and stronger price competition'', said chief executive David Thodey, who in October forecast a single-digit increase in revenue.
The revenue decline is expected to continue for the full year ending on June 30, but Telstra stuck to its forecast of an increase in underlying earnings for the year and free cash flow to hit $6 billion as the heavy capital expenditure of previous chief executive Sol Trujillo's transformation plan winds down.
Shares slumped more than 5 per cent yesterday, down 17¢ to $3.22, as the market absorbed the implications of the accelerated decline in Telstra's most profitable business, the public switch telephone network (PSTN), on top of problems in the two sectors it is relying on to counter the decline of its traditional voice business: mobiles and broadband.
"The result is disappointing. Telstra faces the combined forces of rapidly declining PSTN revenue, price competition in mobile, loss of market share in broadband and mobile, and a switch to prepaid wireless broadband," Sandra McCullagh, of Credit Suisse, said in a note to clients.
Telstra's traditional voice business is not the only sector hit by the move to internet and mobile services. Its directories division, Sensis, reported a 7.3 per cent decline in revenue for the half largely due to significant decline in advertising revenues for Yellow Pages.
Sales revenue dropped 2.5 per cent to $12.32 billion for the six months to December 31 and net profit dropped 3.3 per cent to $1.85 billion.
Long-time Telstra investor Investors Mutual was not fazed.
''Telecom incumbents always have pressure on their PSTN business, that's a fact of life,'' a portfolio manager at Investors Mutual, Jason Teh, said.
The big focus for Investors Mutual was Telstra maintaining its free cash flow target at $6 billion. This equates to 37¢ a share (24¢ last year), signalling Telstra could soon have significant headroom to increase its dividend, Mr Teh said.
Telstra maintained its interim dividend at 12¢, citing a lack of franking credits for the conservative stance.
Mr Teh said uncertainty over an NBN deal, which has the potential to significantly change Telstra's business, also would have played a part in its caution.
Telstra did not offer any further clarity on the NBN front yesterday.
