Australia - Telco Company Profiles - Telstra, Optus and Vodafone

Publication Overview

The total telecoms service market is segmented according to major providers (Telstra, Optus and Vodafone being the major providers). This report provides analyses and detailed revenue and forecasting statistics for the tier-1 operators in the market.

Researchers:- Paul Budde, Stephen McNamara
Current publication date:- November 2011 (17th Edition)

Executive Summary

Tier-1 telcos leading the industry transformation

The total telecoms service market is segmented according to major providers (Telstra, Optus and Vodafone being the major providers). This report provides analyses and detailed revenue and forecasting statistics for the tier-1 operators in the market.

Telstra

Telstra is Australia’s largest telecommunications provider, offering a full range of telecom services throughout Australia. The company provides basic access services to most homes and businesses, local and long-distance telephone call services and mobile and internet services, including over eight million fixed lines and more than 12.5 million mobile connections. Wholesale services are also provided to ISPs and RSPs, while advertising and subscription television services are supplied through subsidiary companies.

The company still dominates the overall telecom market, although it has just under 60% market share of overall revenues in 2011 – well down from the 80% market share it held in the early 2000s. Telstra’s annual results for 2011 showed declining revenue in most segments, and this is expected to fall further during 2011, and again in 2012.

Soon after the Australian government announced the national broadband network (NBN) in early 2009 Telstra finally accepted that change was inevitable and reacted swiftly. A new management team was appointed, led by the new Chief Executive Officer, David Thodey. Telstra immediately announced its support for the NBN and its willingness to work together with the government. The company also put its weight behind the trans-sector concept which will be the avenue to generating new revenue.

Negotiations were launched with the government to investigate how Telstra could best participate: these negotiations have been extremely complex and very tough, and they are continuing. An initial agreement to negotiate further was signed in late 2009, followed by the signing of a heads-of-agreement in mid-2010. With the government’s past election win and the passing of its National Broadband Network legislation in early 2011 and the shareholder vote to approve the NBN plan in October 2011, the NBN rollout will now be accelerated in 2012.

At the same time the company launched an aggressive campaign to win back its competitive position in the market. The company’s Project New has been a great success – and not just financially. For the first time since the Telstra Country Wide era in the early 2000s Telstra customers are making positive comments about its new products and the competitive prices that the company is putting out into the market.

In the final analysis telecoms access is a mass market product – a vanilla product. The survivors will be the largest companies and those who can differentiate themselves through better customer service and better products; however very few of the telcos can rightfully claim to belong to that second category.

Telstra has now put the industry under pressure. It is winning customers back by lowering prices, and through attractive bundle offers. The consequence of this is lower margins and ARPUs for all the players in the market; but Telstra is claiming the highest growth, with its overall revenue increasing to a greater extent than that of many of its competitors.

There are still issues with regulation, especially in relation to the broadband wholesale prices. Telstra’s undertakings regarding its structural separation have been presented to the regulator.

Telstra’s transitional process clearly shows that it shares the vision that has been developed around the NBN. But not only that – the company is now emerging as a leader in the industry, putting its new approach into practice, with a focus on the customer, innovation and new business opportunities.

Optus

Optus offers a range of communications services that include mobile, national and long-distance services, local and international telephony, business network services, internet and satellite services, and subscription TV.

The company has been taking a cautious approach in relation to digital media but it is set to increase its efforts in 2012 as it has launches its version of the FetchTV services within a triple play model. Other IPTV services include a record now TV service for mobiles allowing FTA TV watching and recording. The company is set to expand its customer base as new services – expanded mobile coverage in Tasmania; and an agreement to provide interim satellite services in the NBN rollout to service remote and regional communities that will allow Optus to gain new subscribers across its coverage areas.

The booming numbers of wireless broadband subscribers obtained during 2010/11 will continue to deliver higher data revenue, although as the market rises to saturation levels BuddeComm believes that the rising returns will gradually diminish.

In this report we provide an operational overview of the main divisions within Optus, including consumer, business, small and medium business, wholesale and satellite. A breakdown of key operating statistics is provided for internet, broadband, voice and the Open Network (mobile), in text, tabular and easy-to-read chart formats. Brief highlights of the company’s financials are included.

For the latest financial year results include revenue and EBITDA for each main operating division of mobile, business, wholesale, consumer and SMB fixed; revenue breakdowns for each service division of mobile, voice, internet, data and IP, satellite, ICT and managed services, plus a detailed breakdown of revenue within each of these service divisions. Highlights of the Optus company history are included.

A financial and marketing analysis of Optus’s 2011 financial results is also included, as well as a market analysis for 2011.

In 2011 Optus is moving ahead with technology updates to its networks. In late 2011 the company will trial 4G services using a trial 700MHz licence in Bendigo. Other 4G networks are set to commence in 2012 in NSW, with further rollouts planned. Other strategies have been initiated to attract businesses to use cloud-based services over the IP network and in early 2011 the company announced that a new satellite, Optus 10, would be built and launched in 2013.

Optus has been doing well during a period in which Telstra took its eyes off retail competition. It also embarked on a far more sophisticated approach to customer acquisition, and its head-start in the iPhone market has been one of the best marketing coups in the industry.

But with Telstra becoming far more aggressive, and with the changes that are taking place in the industry around the announcement of the NBN, the company is now facing interesting times.

Optus will need its superior marketing skills to retain its leading position. Sophisticated customer marketing based on new technologies that will assist it to create lifelong customer relationships will be the next battleground in the retail market, and Optus is well-positioned to seize the opportunities that these new technologies offer. It will be assisted by the ongoing growth in smartphones as that will allow it to maximise its relationships with its customers.

Obviously the mobile market remains the company’s key market. However, as its first quarter results showed, ARPU is under pressure either to remain stable or to decline slightly during 2012. At the same time more investments are needed to stay ahead in the all-important mobile broadband market.

The company also maintains its leadership role in making sure that correct regulations are in place so that the rest of the industry is not disadvantaged in the transition towards the NBN. With its experience in HFC broadband it is in a good position to embrace the fresh opportunities that this new infrastructure has to offer.

Vodafone

Vodafone Australia is the third-largest mobile carrier in Australia. It was formed as a 50/50 joint venture in 2009 following the merger of Vodafone Australia and Hutchison 3G Australia. The two equal shareholders of Vodafone Hutchison Australia are Vodafone Group and Hutchison Telecoms. Hutchison Whampoa remains the majority shareholder of Hutchison Telecoms, with an 88% stake. In late August 2011 a further transition of the merged company began as new and renewing subscribers from ‘3’ now can only choose Vodafone services.

Vodafone owns and operates the mobile brands of Vodafone, 3 and Crazy John’s, and offers a comprehensive suite of prepaid and postpaid mobile voice and data products to both consumer and business customers. In early 2011 the company was under fire from consumers for alleged poor service and coverage issues, while the company was also dealing with internal security issues resulting from privacy breaches.

Since then network upgrades across Australia, including LTE, have commenced, and will continue during 2011-2013. These upgrades and new towers should bring the quality bandwidth that is necessary to keep up with the ever-growing expansion of mobile broadband usage that the company has been experiencing. The company also began working with NBN Co in a fixed-line broadband trail in the NBN test sites in mid-2011.

Market highlights:

• While Telstra has successfully defended its market share in the past, the carrier no longer expects this to continue. In particular it reported an accelerating decline in its fixed-line business. Its share of the total market was just at 60% in 2010, and has continued to decline into 2011, with BuddeComm estimating that its share will drop to around 55% by 2013.
• Optus’s share of service revenues continues to be stagnating between 20%-22%. However its wholesale business had a market shift in 2011 and its growth suggests that, even with a subdued market, Optus’s overall share could exceed 23% by 2013.
• The merger of Vodafone and Hutchison and the subsequent network issues has seen the company’s market share drop slightly and with the increasing network expansion Vodafone could return to its previous share of total industry revenue.
• Telstra – $3.23 billion profit with a 17.5% drop in net profit for the year to June.
• Total mobile revenue at Telstra grew by 10.7% to $8.1 billion, driven by customer growth and steady average revenues per customer.
• Optus – in the financial year 2010/11 revenue increased by 4% – but still down from the 8% that was achieved over the two previous financial years.
• Optus’s mobile revenue grew by 6.5% as strong demand was experienced in postpaid customers.

Table of Contents

• 1. Industry Revenue Overview
  • 1.1 Total telecommunications services market
    • 1.1.1 Revenue, revenue growth and market share by major provider
  • 1.2 Telstra
    • 1.2.1 Financial results by sector
    • 1.2.2 Analysis of financial results
  • 1.3 Optus
    • 1.3.1 Financial results by sector
    • 1.3.2 Analysis of financial results
  • 1.4 Vodafone Hutchison Australia Pty Ltd (VHA)
    • 1.4.1 Background
    • 1.4.2 Financial and operations overview FY 2011
  • 1.5 Second-tier market
• 2. Telstra
  • 2.1 Company Overview and Operating Statistics
    • 2.1.1 Company overview
    • 2.1.2 Operational statistical information
    • 2.1.3 Business units
    • 2.1.4 Company analysis – 2011
    • 2.1.5 Networks
    • 2.1.6 Telstra in transition
    • 2.1.7 Controlled and associated entities
  • 2.2 Financial Statistics
    • 2.2.1 Group results summary
    • 2.2.2 Public switched telephone network (PSTN) revenue
    • 2.2.3 Mobile revenue
    • 2.2.4 Internet revenue
    • 2.2.5 Sensis
    • 2.2.6 IP and data access
    • 2.2.7 Telstra international
  • 2.3 Telstra and the NBN
    • 2.3.1 Clearing the way forward
    • 2.3.2 Telstra needs to show industry leadership
    • 2.3.3 The company fully supports the trans-sector concept
    • 2.3.4 Telstra and government agree on NBN future
    • 2.3.5 Telstra Structural Separation Undertaking
  • 2.4 Telstra puts pressure on the competition
    • 2.4.1 Telecoms competition carnage in 2012?
    • 2.4.2 Low fares airline model for Telstra
    • 2.4.3 Consolidation and rationalisation expected
    • 2.4.4 Revenues under pressure
    • 2.4.5 Background reports
  • 2.5 Analysis of the Telstra transition – the next phase
    • 2.5.1 Analysis of Telstra’s cloud coup
• 3. Optus
  • 3.1 Company Overview and Operating Statistics
    • 3.1.1 Financial highlights
    • 3.1.2 Operating results
    • 3.1.3 Products and services
    • 3.1.4 Mobile services
    • 3.1.5 Major subsidiaries
  • 3.2 Financial Statistics and Analysis
    • 3.2.1 Company analysis
    • 3.2.2 Financial results
  • 3.3 The Network
    • 3.3.1 Infrastructure overview
    • 3.3.2 Consumer customer access network, the HFC network
    • 3.3.3 Fixed network
    • 3.3.4 Mobile network
    • 3.3.5 Wireless networks
    • 3.3.6 Wholesale activities
    • 3.3.7 Digital media and cloud computing
    • 3.3.8 VoIP network
    • 3.3.9 Satellite networks
  • 3.4 Tough times ahead for Optus SingTel
    • 3.4.1 Competition from the telcos
    • 3.4.2 Competition from the internet companies
    • 3.4.3 Leader of innovation in mobile
    • 3.4.4 Infrastructure and wholesale
    • 3.4.5 The NBN
    • 3.4.6 Digital media
• 4. Vodafone
  • 4.1 Company information
    • 4.1.1 Overview
    • 4.1.2 Subscriber and dealer backlash
  • 4.2 Company analysis
    • 4.2.1 Major setback for the company
    • 4.2.2 Vodafone restructure – a misdirection?
  • 4.3 Financial highlights
    • 4.3.1 Overview FY2011 H1
    • 4.3.2 Highlights FY2010
    • 4.3.3 Hutchison Telecommunications (Australia) (HTA) financial highlights for FY2010
  • 4.4 Operating highlights
    • 4.4.1 Overview FY2011 H1
    • 4.4.2 Overview FY2010
  • 4.5 Vodafone – 3 merger
    • 4.5.1 Update on merger – September-2011
    • 4.5.2 Update on merger – mid-2010
    • 4.5.3 Initial competition concerns unwarranted
    • 4.5.4 High level facts and figures of the merger
    • 4.5.5 Analysis mid-2009 – update mid-2010
    • 4.5.6 Positive and negative elements
    • 4.5.7 Outlook
  • 4.6 Networks
    • 4.6.1 Background
    • 4.6.2 Vodafone network
    • 4.6.3 3 network
    • 4.6.4 New 2100MHz network developments from Vodafone – late 2010
    • 4.6.5 Network upgrades – 2010 - 2012
    • 4.6.6 LTE testing
    • 4.6.7 Vodafone to work in NBN trial area with fixed-line broadband
• 5. Glossary of Abbreviations

• Table 1 – Total telecoms revenues by major provider – 2000 - 2013
• Table 2 – Total telecoms service market share by major provider – 2003 - 2013
• Table 3 – Telstra Group total revenue and annual change – 2000 - 2012
• Table 4 – Telstra Group revenue by service and annual change – 2010 - 2011
• Table 5 – Telstra fixed telephony revenue and annual change – 2010 - 2011
• Table 6 – Telstra PSTN products revenue and annual change – 2010 - 2011
• Table 7 – Telstra mobile revenue and annual change – 2010 - 2011
• Table 8 – Telstra internet revenue and annual change – 2010 - 2011
• Table 9 – Telstra IP and data access revenue and annual change – 2010 - 2011
• Table 10 – Telstra offshore controlled entities revenue and annual change – 2010 - 2011
• Table 11 – Optus overall operating revenue summary and annual change – 2000 - 2013
• Table 12 – Optus operating revenue by operating division – 2010 - 2011
• Table 13 – Operational EBITDA by operating division – 2007 - 2011
• Table 14 – Optus revenue by major and minor service category – 2009 - 2011
• Table 15 – Statistical overview (calls/subscribers/networks) – 2007 - 2011
• Table 16 – Statistical overview (calls/subscribers/networks), annual change – 2007 - 2011
• Table 17 – Financial and operational headline statistics – Telstra results 2011
• Table 18 – Telstra Group total revenue – 1994; 1996; 1998; 2000 - 2011
• Table 19 – Telstra Group revenue by segment – 2008 - 2011
• Table 20 – Telstra Group sales revenue, EBITDA, EBIT and net profit – 2002 - 2011
• Table 21 – Telstra Group revenue, EBITDA, EBIT and net profit by annual change – 2003 - 2011
• Table 22 – Telstra Group EBIT by segment – 2009 - 2011
• Table 23 – Telstra Group revenue by service – 2009 - 2011
• Table 24 – Telstra PSTN products revenue – 2009 - 2011
• Table 25 – Telstra mobile revenue – 2009 - 2011
• Table 26 – Telstra mobile ARPU – 2009 - 2011
• Table 27 – Telstra mobile prepaid and postpaid revenue – 2008 - 2011
• Table 28 – Telstra internet revenue by service stream – 2009 - 2011
• Table 29 – Sensis financial summary – 2009 - 2011
• Table 30 – Telstra IP and data access revenue – 2009 - 2011
• Table 31 – Telstra offshore controlled entities revenue – 2009 - 2011
• Table 32 – CSL New World revenue, expenses, EBITDA, EBIT, capex – 2009 - 2010
• Table 33 – TelstraClear revenue, expenses, EBITDA, EBIT, capex – 2009 - 2011
• Table 34 - NBN deal valuation cash flows ($)
• Table 35 – Selected Telstra revenues by service – 2009 - 2011
• Table 36 – Selected second tier telco revenues by service – 2003 - 2011
• Table 37 – Second-tier telcos – revenue by provider – 2008 - 2011
• Table 38 – Second-tier telcos – relative market shares by selected providers – 2008 - 2011
• Table 39 – Total payments to be made to Telstra – 2012 - 2019
• Table 40 – Telstra subscribers by sector – 2005 - 2012
• Table 41 – Telstra – fixed line by sector and mobile voice minutes of use – 2005 - 2011
• Table 42 – Optus Consumer telephony statistics – 2008 - 2011
• Table 43 – Optus on-net ARPU – 2008 - 2011
• Table 44 – Optus mobile subscribers – 1998 - 2012
• Table 45 – Optus mobile key operating statistics – 2008 - 2011
• Table 46 – Optus business and wholesale statistics – 2008 - 2011
• Table 47 – Optus consumer internet statistics by technology – 2008 - 2011
• Table 48 – Optus Total internet subscribers (broadband and dialup) – 1996; 1998; 2000 - 2012
• Table 49 – Optus overall operating revenue summary – 2000 - 2011
• Table 50 – Operating revenue by operating division – 2007 - 2011
• Table 51 – Operational EBITDA by operating division – 2007 - 2011
• Table 52 – Optus revenue by major and minor service category – 2009 - 2011
• Table 53 – Capital expenditure by operating division – 2009 - 2011
• Table 54 – Optus Wireless Connect locations – 2011
• Table 55 – Optus Wireless Connect pricing – 2011
• Table 56 – VHA key metrics – financial overview – 2009 - 2011
• Table 57 – Monthly ARPU by segment – 2009 - 2011
• Table 58 – Vodafone operational overview – subscribers, ARPU, CoA – 2009 - 2011
• Table 59 – Vodafone – subscribers by type – 2009 - 2011
• Table 60 – Vodafone data subscribers by type – 2009 - 2011

• Chart 1 –Total telecoms service revenue by major provider – 2000 - 2013
• Chart 2 – Market share of telecoms revenue by major operator – 2011
• Chart 3 – Telstra – fixed line by sector and mobile voice minutes of use – 2005 - 2012
• Chart 4 – Telstra – fixed-line, mobile and broadband subscribers – 2005 - 2010
• Chart 5 – Telstra Group total revenue – 1994 - 2011
• Chart 6 – Telstra Group sales revenue, EBITDA, EBIT and net profit – 2002 - 2011
• Chart 7 – Telstra Group revenue, EBITDA, EBIT and net profit by annual change – 2003 - 2011
• Chart 8 – Telstra Group revenue by sector – 2009 - 2011
• Chart 9 – Selected Telstra revenues by service versus total revenue – 2009 - 2011
• Chart 10 – Telstra PSTN products revenue – 2009 - 2011
• Chart 11 – Telstra mobile revenue prepaid versus postpaid – 2008 - 2011
• Chart 12 – Telstra fixed internet revenue by service stream – 2009 - 2011
• Chart 13 – CSL versus TelstraClear financial snapshot – 2009 - 2011
• Chart 14 – Selected Telstra revenues by service – 2008 - 2011
• Chart 15 – Selected second tier telco revenues by service – 2003 - 2011
• Chart 16 – Selected second-tier telcos – revenue – 2010 - 2011
• Chart 17 – Market share size of NBN trans-sector market – 2020
• Chart 18 – Total payments to be made to Telstra – 2012 - 2019
• Chart 19 – Telstra services in operation by sector – 2005 - 2012
• Chart 20 – Optus on-net ARPU by sector – 2007 - 2011
• Chart 21 – Optus mobile subscribers and annual change – 1998 - 2012
• Chart 22 – Optus business and wholesale statistics – 2007 - 2010
• Chart 23 – Optus consumer internet statistics by technology – 2007 - 2011
• Chart 24 – Total internet subscribers (broadband and dialup) – 2000 - 2012
• Chart 25 – Long term share trending SingTel – 2003 - 2011
• Chart 26 – Share price trending SingTel – 2011
• Chart 27 – Optus overall operating revenue and annual change – 1994 - 2011
• Chart 28 – Operating revenue by operating division – 2006 - 2011
• Chart 29 – Operational EBITDA by operating division – 2006 - 2011
• Chart 30 – Capital expenditure by operating division – 2008 – 2011
• Chart 31 – Long term share trending Telstra versus SingTel – 2003 - 2011
• Chart 32 – Share price trending Telstra versus SingTel – 2010 -2011
• Chart 33 – VHA financial overview – 2009 - 2011
• Chart 34 – Overall monthly ARPU – 2009 -2011
• Chart 35 – VHA ARPU by segment – 2009 - 2010
• Chart 36 – Vodafone subscribers prepaid versus postpaid – 2009 - 2011
• Chart 37 – Vodafone 3G subscribers versus mobile broadband subscribers – 2009 - 2011

• Exhibit 1 – Telstra Corporation Ltd at a glance – 2011
• Exhibit 2 – Sensis Pty Ltd at a glance – 2011
• Exhibit 3 – Sensis key products and services
• Exhibit 4 – Telstra’s NGN planned implementation time-line
• Exhibit 5 – Telstra-controlled entities (Australia) – 2011
• Exhibit 6 – Telstra-controlled entities (offshore) through Telstra Holdings – 2011
• Exhibit 7 – Jointly controlled and associated companies – 2011
• Exhibit 8 – Optus at a glance
• Exhibit 9 – Optus key results – first quarter – 2012
• Exhibit 10 – The SingTel Optus network
• Exhibit 11 – HFC network status
• Exhibit 12 – Overview of Optus satellites – key user statistics – 2011
• Exhibit 13 – Vodafone Hutchison Australia (VHA) at a glance – 2011