The highly competitive Telco markets of mobile, broadband and new generation technologies seem to be on the verge of another war between Telstra, Optus, Vodafone, Hutchison, Telecom NZ/AAPT and anyone else who can keep up.
The best part of $1.2 billion has been committed this week in two separate announcements: this is on top of the billion or so TLS has spent on its NextG network business and the hundreds of millions of dollars being spent in normal capital expenditure by Telcos just to keep up.
Analysts now say that the decision by Telecom NZ to bid for Powertel in Australia in a $360 milliondeal and the $800 million Optus has committed to expanding its 3G network, are signs that a new capex spending war is unfolding.
This has the potential to slice margins and drive prices lower which will be great for consumers, but lousy for investors in the sector, especially those who either bought the T3 instalment receipts for the first time or took them up as existing shareholders.
It has already bit Telstra, introducing a note of weakness into the price of the fully paid and the T3 receipts since the Optus spending was revealed early in the week and then the TEL move on PowerTel, which in turn could see wholesale revenues sliced at TLS.
A belief that Telstra had ‘routed’ its competitors who were being forced to pull their horns in helped drive the TLS share price to a recenthigh (for almost a year) of $4.39 last week before it started weakening (almost in fright at being so high)
The deal that has set off fears of another capital intensive, profit poor war is the move by TEL on Powertel (PWT) in an attempt to give the Kiwi Telco’s struggling AAPT business more bulk and clout.
It may well succeed. PowerTel is strong in infrastructure with fibre in CBD buildings, inter-capital transmission, DSLAMs in 120 exchanges and access to iiNet’s 300 exchanges via 20 per cent stake in iiNet.
AAPT has the customers but not the infrastructure. PWT is a customer-poor company in comparison to the other Telcos and wannabees but the resulting combination will produce more capacity utilisation for PWT and lower costs for AAPT and a stronger company could emerge.
That’s why some sort of spoiler from Optus/Singapore Telecom or even TLS can’t be ruled out; a combined PWT/AAPT with TEL across the Tasman might just have enough scale to make life very difficult in Australasia and especially Australia.
Any savings AAPT makes from migrating its business to PWT will mean lower wholesale revenues for TLS and that’s a solid loss.
AAPT is an old fashioned reseller of other Telco’s capacity: it’s a living but it’s not the future.
AAPT’s combination with PWT could cost TLS hundreds of millions of dollars in lost wholesale revenues: it won’t happen right away, the loss will be slow and steady but the potential is there.
Telecom New Zealand is offering $2.30 a share for PowerTel which owns the country’s second biggest fixed-line broadband network.
The deal is friendly and blessed by the PWT board.
The immediate benefit will be to staunch the losses at AAPT which totalled $76 million in 2006. That’s after TEL has written down its investment substantially in the past couple of years.
AAPT already has an agreement signed late last year to gain access to PWT’s network, to offset the TLS access.
While Telstra faces the loss of a lot of wholesale revenue, Optus could be the one hurt the most by a financially stronger combination of AAPT/PowerTel and Telecom NZ.
Its early days but the battle is back on; the money has voted.
And in another sign the long time CEO of TEL, Theresa Gatung is quitting Friday. She wasn’t around to reveal the bid for PowerTel this week. There’s new blood on the way and Australia seems to be the way to go for the company’s future.
………………………….
The other big capex move this week was from Optus which revealed plans to spend up to $800 million extending its 3G mobile network deeper into regional areas of the country.
From what Optus said the move is a response to TLS’s NextG network which went live last October. Optus says the result will be 3G coverage across 96 per cent of the country.
Construction will start in April and for Optus is a steady as she goes rather than gigantic leap. 3G technology offers customers a range of data services to their phones, including news, sport, weather, internet access, video clips and video calling as well and music downloads
But it does put to bed the impression TLS, Optus and others fermented that there would be a capacity/infrastructure sharing approach to 3G Networks. TLS certainly busted that wide open with its headstrong approach to NextG and refusing access by competitors.
In 2005, Optus joined Vodafone to launch a 3G network in mainland capital cities and at the same time, Telstra paid $560 million for a half interest in the Hutchison 3 Mobile network.
But Telstra changed its approach when Sol Trujillo arrived and went out on its own, spending a billion dollars on the NextG and pushed to close its CDMA network by January next year.
The CDMA network (which is high cost and should never have been built) has around 1.7 million customers and TLS wants to push them to the NextG network.
Competitors such as Optus have objected to that but haven’t been in a position to do anything but waste breath because they had no infrastructure in place.
Now Optus has decided it has to be in regional areas because the chance to build a new customer base by raiding the CDMA customer base (and working off Telstra’s bad reputation across much of the bush) is simply too big an opportunity to let slip.
Work starts in April but won’t be completed until 2010: Optus really should have moved 18 months ago but was stuck in the low capex mantra that its Singapore Telecom masters (and some executives) and so
