Optus - financial Analysis
Optus has released full year financial results, recording a total of $7.76 billion for the 12 months to March 2008, an increase of 3.8%, marginally below the previous year’s results. This result can hardly be described as impressive. Incumbency has been the safe option for Optus, but the market dynamics of the telco sector will change significantly over the next few years.
Table 1 - Optus revenue by major service division - 2007 - 2008
|
Major service division |
2007 |
2008 |
Annual change |
Portion of total revenue |
|
Revenue ($ million) |
||||
| Mobile | 4,177 | 4,355 | 4.3% | 55.9% |
| Voice | 1,682 | 1,555 | -7.6% | 22.5% |
| Internet | 357 | 403 | 12.9% | 4.8% |
| Pay TV | 121 | 140 | 15.7% | 1.6% |
| Data and IP | 631 | 721 | 14.3% | 8.4% |
| Satellite | 243 | 249 | 2.5% | 3.3% |
| Prof Services | 299 | 355 | 18.7% | 4.0% |
| Other (incl interdivisional) | -35 | -18 | -48.6% | -0.5% |
| Total | 7,475 | 7,760 | 3.8% | 100.0% |
(Source: BuddeComm based on company data)
With a large proportion (56%) of its total revenue attributed to mobile, Optus is already feeling the pinch of a mobile market that has almost reached the point of saturation. Growth in mobile subscribers of 5.9% to 7.14 million, and growth in mobile revenue of only 4.3% to $4.36 billion, leaves Optus placed behind its competitors, Telstra and Vodafone, and especially Hutchison, in terms of market growth. Optus responded to Telstra’s Next G rollout with a planned increase in market coverage of its HSPA rollout from 96% to 98%, but time will tell whether this will have much impact on Telstra’s strong position in regional markets. Also Optus was the last mobile operator to enter the market with 3G mobile content and mobile broadband offerings.
Legacy voice products dropped as expected, but what was of most concern, was the extent of that fall. Overall fixed-line voice services fell by 7.6% to $1.56 billion, compared with a fall of 6.1% in 2006/07. Of particular concern was the drop in consumer off-net fixed voice products which voice fell 34%. While the latter decline can be attributed to the cancellation of a reselling contract with Telstra, the overall consumer fixed voice revenue still shows a big decline.
A few years ago Telstra decided to move away from a strategy of building up strong margins from wholesale products and move back to a tightly, vertically integrated retail player. Wholesale prices were raised, thus trimming reseller margins even further, triggered market consolidation. Optus as the number two player in the market was heavily targeted, and Optus’ position in the voice market was thus fundamentally weakened.
This places more pressure on Optus to perform in its higher growth products: Broadband (up 12.9%) and data and IP (up 14.3%), and Professional Services (up 18.7%), especially when considering that legacy products (fixed voice and mobile) still constitute nearly 80% of Optus’ overall revenues.
Also Optus’ strategy several years ago of backing off in the pay TV market has meant that it is missing out on capitalising on a true triple play strategy (voice, Internet, TV), which creates more stickiness in customer retention and would also give it the opportunity to capitalise on the emerging digital media market.
Phil Harpur, Senior Analyst
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