Forum Archive Index - April 2002

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

Hi donkeyb1


>
>
>
>this started with you lionising your god theresa 
>- i just pointed out a series of bad decisions and areas 
>where tel has been strategically deficient.
>
>i never said that tls is any better. you may be right 
>tel may be cheap - although i doubt it. 
>
>
>



So if I read you correctly, many of these anti-telecom arguments that 
you put out may equally well apply to all of those other Telcos 
around the place.   In particular you mentioned the 'Porter Model', 
which after some homework I now understand discusses 5 competitive 
market forces, namely:

1 Potential Entrants
2 Buyer Bargaining Power
3 Substitutes
4 Supplier Bargaining Power
5 Level of Competition

Now, I can understand that you might see Telecom as vulnerable in 
some areas.   But I have to ask you, is TEL vulnerable overall? 

The trend in business seems to to to tout for telecommunications 
services as part of a 'package deal'.    If you want to integrate a 
landline/cellphone/internet package, who is there that can compete 
with Telecom?  

Do businesses want to change their Telephone numbers?   There is no 
number portability in NZ yet.  Even when it comes, the Australian 
experience thas been people switching back from their niche providers 
to Telstra.  Not the other way around!

If you look at package deals on a personal level, the digital TV 
side of the information technology seems to be converging to one 
operator - 'Sky TV' - even though they have yet to turn a profit.   
Telecom have got into bed with Sky TV.  Are there any competitors out 
there?   Didn't Sky just take over the management contract for Saturn 
TV?  On the personal level have you ever tried negotiating down your 
phone bill (lower line charges)?

There was talk of wireless networks making Telecom's local loop 
redundant, but such talk was about 10 years ago.  Will wireless ever 
be a serious alternative?   If anyone can make a profit on it, it 
should be Sky TV and they haven't done so yet.   If you want clarity 
and reliabilty there is no getting away from the fact that copper 
wire is best.

I would agree that there does seem to be competition in the long 
distance toll call market, but in every other area Telecom seems to 
be a solid number one, or number two.

So when you say that the underlying business of Telecom is weak, 
because it doesn't tie in with the kind of competitive advantage it 
needs in accordance with the Porter Model, I think you need to 
explain yourself further.


>
>
>>You think others are going to be able to fund the equipment 
>>needed for new technology, cheaper than Telecom can? 
>
>
>so you believe tel has more buying power than any other telco in the
>world? you dont believe that telco equipment providers with not 
>start discounting equipment to new customers - thus making incumbant
>networks expensive - particularly due to the level of debt used to 
>buy the incumbant networks.
>
>


I think that Telecom has sufficient critical mass to compete with 
anyone who may be interested in coming to the Australian and New 
Zealand market yes.  I don't see why telco equipment providers would 
discount equipment more to new customers than existing ones.  
Worldwide the big global players seem to be in retreat, not on the 
acquisition trail!   And telco equipment makers are certainly going 
to look twice at extending favourable credit to a telecommunications 
start up company.


>
>
>there are at least three data networks that can operate
>independently of tel for most of their data trafic - remember that 
>80% of NZ's data orginates and terminates in the cbd. in two or 
>three years why would tel control this?
>
>

There is no guarantee that in 2 to 3 years time, 80% of data traffic 
will originate and terminate in the CBD.   There has been a trend to 
move call centres away from the biggest CBDs for example.   The more 
decentralized telecommunications becomes, the better Telecom looks! 


>
>
>I agree xtra may have been worth 12.5% of tel, but it was never 
>worth $2b. apply the porter model to it - its fails almost every 
>test. 
>
>

Is applying the Porter model to a single arm of the 
telecommunications tree, a valid test?  Even though it was mooted 
that Xtra would be part floated, it was never going to be completely 
divorced from ther rest of the Telecom business.



>
>
>apply a cashflow model to it, and it still fails. 
>
>




Let's look at internet revenue over the past 5 years:

Internet Revenue ($m)

2001: $79m   (+18%)
2000: $67m   (+156%)
1999: $43m   (+195%)
1998: $22m   (+536%)
1997:  $4.1m


Xtra Active Customer

2001: 296,400 (+30%)
2000: 226.730 (+55%)
1999: 146,043 (+84%)
1998:  79,560 (+56%)
1997:  51,000


Average Hours per Active Customer (per month)

2001: 25    (+28%)
2000: 19.6  (+78%)
1999: 11    
1998: Not Mentioned
1997: Not Mentioned


The above trends show more people taking up Xtra internet 
(despite strong competition) with revenue per hour declining.  
Nevertheless the overall revenue growth is strong.  

If you assume an ongoing revenue growth rate of 18% and a price to 
revenue ratio of 40 (not out of the way if such a growth rate can be 
sustained) then you could argue that Xtra has valuation of 

40 x $79m = $NZ3.2billion

Granted, this ignores trifling matters like cost of sales ;-).  But 
if Telecom, and by implication Xtra, can long term continue to earn a 
return of equity of around 70% on their New Zealand operations, and 
any Xtra share float would reduce borrowings for that side of the 
business to sustainable levels, then perhaps a valuation of 
$NZ2billion for Xtra is not so far out of line?



>
>
>
>The statement was never reasonable 
>and underlines the poor analysis 
>and understanding that tel has of its own business.
>
>
>


Perhaps you would like to present your own alternative valuation 
based on the figures I presented?


>
>
>
>I dont see how me saying that tel is not a good investment,
>  or that theresa is not a good manger implies that 
>tls is a good business????
>
>



If you are judging Gattung and Telecom, surely you must judge the 
performance by a standard?   Essentially if you say that 
Theresa is not a good manager the first question I must ask is 'not 
good, relative to what?'.   I offered the example of Telstra as a 
comparison.




>>
>>Are you talking about the AAPT CDMA mobile network in 
>>Australia?  That rollout has already been stopped.
>>
>
>no i am not. read your research.
>



Are you talking about the:
"focused program of 'first mile' access network build out, which 
includes fibre optic rings in the central business district of 6 
state capitals?" (as mentioned in the y2k Telecom Annual report).

I am not privy to any information that said AAPT were going to pay 
for this by getting a 'cornerstone user', then selling off the rest 
of the bandwidth available at a higher 'second tier' rate. 



>>
>>
>>Why don't you think Telecom can extract 'first mover' 
>>profit out of the 027 network?   Would they have had
>> to spend any less money to establish the network if 
>>they came in second to the 2G market? 
>>
>>
>
>
>there is a thing called "time value of money" and 
>they have to spend the time.
>
>
>


I'm not sure I understand your answer.  Are you saying that in the 2g 
phone market there is no such thing as a first mover advantage, as it 
will be more than wiped out by the plunging cost of equipment that 
any new entrants to the market will pick up, once the technology is 
established? 



> 
>
>
>
>as for her goal - do you really believe every bit of mba bullshit 
>you are fed. how is she going to deliver this? 
>Is there one customer than tel has serviced in a way that meets the 
>technology's potential?
>
>another gattung answer is indicative - when asked if tel has
>implemented the technology they are selling to corporates - she
>replied "we are not a test site".
>
>so it you have an investment horizon of three to four years (ie
>planning for a network) and you cant second guess what the network
>maybe wanted for - perhaps you shouldnt have the job.
>
>
>
>


I think your allegation is that TEL is not proving the technology 
they promote (whatever that means) and they are underselling the 
potential of the technology through ignorance of their customers 
requirements.  

If so, it sounds like you are speaking with a particular 
case/application in mind.  Would you care to elaborate?


SNOOPY













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