Telstra curbs forecasts
By Leonie Wood
TELSTRA Corp has heavily moderated its once-bullish forecasts for Internet transmission growth and telecommunications valuations, and conceded it paid a huge premium last year to secure $4 billion of joint ventures with Richard Li's Pacific Century CyberWorks.
Telstra chief executive Ziggy Switkowski said plans to float the joint ventures had been deferred indefinitely pending stronger sharemarket conditions.
But he insisted the merger of Telstra's international cable network with PCCW's Hong Kong Telecom cable assets - a joint venture known as Reach - was on track and performing strongly.
The partners"regional wireless joint venture, known as CSL and consisting of only HKT's multi-branded mobile phone business in Hong Kong, also was trading in line with expectations.
Reach's profit before interest, tax, depreciation and amortisation would total between $US400 million ($788 million) to $US500 million this calendar year, while CSL would generate EBITDA of $US150 million to $US175 million.
As PCCW shares plumbed record lows of $HK1.98 (50¢) and Telstra hit a new three-year low of $4.90, senior Telstra executives and the managers in charge of the Asian joint ventures fronted analysts and fund managers in Sydney to bolster confidence in the Asian strategy.
But several participants were frustrated by the scant detail provided, noting there was little financial data, no clues on how Reach is charging Telstra for carrying all the Australian carrier's international transmissions, and no clear business plan ahead.
Indeed, Reach chairman Gerry Moriarty, a senior Telstra executive, conceded Reach's chief executive Alistair Grieve was yet to present a long-term business plan in a format suitable for the board.
Since the joint ventures were formalised in February, Mr Grieve has focused on the enormously complex task of integrating the carrier assets to form Asia's biggest regional carrier.
At the same time, Mr Grieve grapples a highly dynamic industry. Transmission prices are sliding and the cost of network access is falling as European and US carriers, weighed down by high debt levels and excess capacity, struggle to sell time on their networks.
Mr Grieve said demand for transmission capacity was still growing, but not at "the unbelievably high levels that were predicted at the height of the dot.com bubble". Demand for bandwidth was growing at just 60 to 100 per cent a year, he said, compared with 100 per cent growth per quarter a year ago.
Similarly, the need for big Internet data hosting centres had vanished. As a result, Telstra and PCCW abandoned plans to form a third joint venture, instead putting all their data hosting centres in Asia into the Reach joint venture.
While Telstra is anxious to expand elsewhere in Asia, Dr Switkowski said it would focus only on targets involved in wireless or Internet data transmissions, it wanted operational control, and any investment should not dilute Telstra's group profit.
Telstra has a short list of target countries - Hong Kong, Japan, Malaysia, Singapore, China, Taiwan and Vietnam - where it believes demand for telecommunications, and mobile services especially, will escalate. But it considers India's regulatory conditions prohibitive, and Australia's biggest carrier will not invest further in Indonesia for the foreseeable future.
The reporter owns Telstra shares.
-THE AGE
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