FY08 Report - Telstra & Sensis Performing Well, Expansion into China, Starts Competing with iTunes

Telstra's CEO Mr. Sol Trujillo delivered $3.7 billion profit after tax and minority interests for the year ended 30 June 2008. Some of the key highlights of this report are

• Mobile services revenue grew 12.3% to $5.5 billion
• Retail broadband revenue grew 49% to $1.8 billion and ARPU increased 2.9%. Retail broadband customer numbers grew strongly to 3.3 million for the year resulting in a market share gain of 2 percentage points to 49%
• PSTN revenue was $6.7 billion, a 3.2% decline for the year compared with 4.4% in fiscal 2007. The number of retail PSTN lines has grown for 14 consecutive months.
• Retail sales revenue grew 5.9% for the year.
• Growth of 3.6% in Telstra Enterprise & Government

• 3G penetration more than doubled since June 2007 to 47% of our mobile base or 4.4 million subscribers, a feat unmatched by our global peer group. Optus & 3 were caught off guard, but the fight is on.
• Telstra continues to gain around 20,000 wireless broadband subscribers per month with 588,000 in total generating ARPU in excess of $90 per month.
• SMS revenue grew 20% to $740 million over the year. We will see more increase in revenue in this space as we move from e-commerce to m-commerce.

• IP revenues exceeded the revenues from legacy data products in the second half for the first time. This was driven by IP access growth of 28% for the full year. No surprises here.
  

• Redundancies were higher with the total workforce reduced by 8,784 since 1 July 2005, ahead of guidance of 6,000 to 8,000 (excluding acquisition and divestment activity).

BigPond Music platform - venture into the online music industry by offering tracks from all major record labels in a format (MP3) that could be transferred between most music players, including the iPod, Sony Walkman, Xbox, PlayStation 3 and home media centres. This offering is in direct competition to Apple's iTunes offering which is regarded as a walled garden, Mr. Trujillo without naming anyone said this.

"From today Australian consumers have a real choice; between our competitors' restricted world where music cannot easily be transferred between devices, and Telstra BigPond's truly open world that offers convenience, simplicity and quality. Telstra BigPond is changing the game in music just as we have in other categories of online content.We will increase our share of the online music market because we already have a large online audience and billing relationships with millions of customers. And from today we also have a superior technology."

IT Transformation is underway:


Now on to Sensis

• Sales revenue 8.1% to $2.1 billion for fiscal 2008
• Yellow™ directories increased revenue 5.8% to $1.3 billion with Yellow™ print revenues up 3.7%. This implies 2 points - Online and Print usage is binary and has to exist side by side. Mobile consumption hasn’t made any inroads yet, because that will impact print usage.
• White Pages® directories delivered double-digit growth, up 11.5% to $369 million. This is a good reflection of the fact that Telstra is still a major player in the Government sector and has grown this year.
• Digital media revenues including SouFun, Whereis® and MediaSmart® grew 32%
• 110 million write down in Trading post as a result of competition in the traditional print classified market. Not sure if this is the right justification
• Voice revenue increased by 5.9% to 126 million primarily due to increased call volumes within 1234 of 31.2%
  
• Emerging business 18.1% growth, this includes location and navigation-based services (Whereis), and online display advertising which grew 45.5%. Recently launched mobile display advertising is included in this segment.
• 2 more Chinese online investments worth $29M (USD) – Norstar Media, auto home/pcpop
• The rest of the Sensis portfolio services are not making any huge impact. I have pointed out in past that the Long Tail has to be monetized, otherwise, write it off.

It's a good result for Telstra & Sensis. Growth in the 3G Mobile space as a dominant player will put Optus on the back foot. Growth in SMS is significant and will be more in future.
Diversifying the online portfolio in an emerging Chinese market is a good move following the footsteps of Google & Yahoo.
Bigpond Music is a welcome move for customers, it's a good marketplace to be competing with iTunes. I will not be surprised if we will see movies being offered if this service takes off. Telstra is definitely taking on Apple as recent negotiations with Apple haven't gone their way.
It will be interesting to see how the ongoing consolidation projects in Sensis (Morph) & Telstra will make them more agile in the marketplace.

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