Forum Archive Index - October 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> The thing which gets me, is that for goodwill to be amortised over
> 20 years in the Telecoms market is laughable.  The tacit assumption
> of doing so is that the customers acquired in the deal will still be
> with you in 20 years. Now no one here believes that this will be the
> case in a technology driven industry in which the demands from
> customers are being reinvented closer to every 5 years.
>
I would assume that this goodwill includes not only the assumption 
that they will retain the existing business customers, but that the 
dollar value business of each customer will on average grow too.  In 
other words in 20 years time the whole telecommunications market may 
have expanded a lot more than is evidenced by the size of the market 
today, justifying the high goodwill value in today's terms.  

However, I note while perusing the Telstra 2000 Annual report on page 
155, that while goodwill in Australia legally *can* be amortized over 
20 years, Telstra *chooses* to amortize their goodwill over only 6 
years.  That sounds a more realistic figure. 

I assume the reason why Telecom are spreading this goodwill 
amortisation over 20 years is because they legally can, and it 
makes the TEL balance sheet look better  (they don't have to worry 
about having a negative asset backing).

But I agree it may be wildly optimistic, and it would seem that 
Telstra at least wouldn't do it this way.  Well spotted Philip!
SNOOPY

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