Consolidation will continue to occur, both at the high and low end of the market. However, consolidation towards Telstra, Optus and Vodafone is unlikely. More to the point, it will be consolidation towards Telstra, Optus and Hutchison.
Further polarisation of the industry around the differing technology styles, therefore, is likely over the remainder of 2002.
In regards to 3G, HTA will lead the way with Optus now delayed to late 20033, early 2004, Telstra delayed until 2004 or until T3 is finally resolved, and Vodafone searching for an infrastructure sharing partner.
Elsewhere, in 2G: 1) Optus will continue to make inroards into Telstra and Vodafone; 2) Vodafone will continue to lose market focus and market share on 2G; 3) Telstra will continue to be caught in the crosshairs of everyday politics; and 4) CDMA will prove to be a strong growth catalyst for HTA.
CURRENT ARPU ANALYSIS:
ARPU stands for "average revenue per user" and can be expressed on either a monthly or annualised basis. It is a value driven KPI iullustrating the extent to which customer connections are adding to a telco's revenue base.
Current ARPU rates (per month) for major incumbent carriers here in Australia are as follows:
TELSTRA: @31/12/01 = $52pm Down >4% Estimate for 31/3/02 (results due out w/b 29/4/02) = $50 - $50.50, trending down to <$50 by midyear.
OPTUS: @31/12/01 = $50pm Down >4% Estimate for 31/3/02 (results due out in May) = $48 - $51.
VODAFONE @31/12/01 = $58.40pm @31/03/02 = $54pm Down 7.5% Estimate for 30/6/02 = $51 - $53.
HUTCHISON @30/06/01 = $66pm @31/12/01 = $69pm Up 4.5% Estimate for 31/03/02 = $68 - $70.
EXPECTED FUTURE ACTION:
Telstra's ARPUs will come under further decline in the coming months (primarily due to pressure from Optus). Expect a ~$50 result by mid-year. Early indications based on Q3 results, next week.
Optus' ARPUs will also come under further decline, due to its discounting /ongoing subsidy startegy (which offers benefits to high usage custosmers, as well as attracting many low usage customers).
Vodafone ARPUs will continue in decline as Vodafone is unable to match the Optus discounting pressure, particularly in relation to GSM.
Hutchison ARPUs to remain static to marginal increase due to its targetted CDMA pitching, primarily targetting the high user /corporate end of the market.
SHORT-TERM PRICE TARGETS:
HTA share price to further stabilise in the mid-40s before increasing back up to the mid- high 50s by end May.
TLS share price to drop below $5.00 and stabilise around $4.80 -$4.90 by month's end.
SGT share price to remain depressed around the $1.60 mark until at least June /July.
Vodafone share price to remain under pressure in the UK with a 85p possibility by month's end dependent upon the nature /extent of the goodwill writedowns that Vodafone is likely to announce in late May.
VODAFONE'S POSITION IN AUSTRALIA IS PRECARIOUS:
Vodafone is without funding in Australia. It is trying to sell off its network assets so that it can compete on a service provision basis. It's operations in Australia are losing money, and it cannot afford to go into 3G, except on a share network basis, and even then, it will have difficulties unless some sort of 3rd party funding comes to the fore.
In its latest KPIs for Q4, 01 (ie: 31st March, based on a March balancing date for Vodafone PLC), Vodafone lost further market share, and a flight of customers in Australia, and suffered a 3% loss in its ARPU values (the 5th successive quarterly decline in ARPU values).
If, then, Vodafone is going to roll out 3G throughout Europe, sort out its US Verizon exposure (ie: bid-?, no bid-?, or exit-n), as well as consolidate its hold over Japan Telecom, whilst also establishing its China presence, then just where will it find the CAPEX /OPEX required of it to preserve its existing 2G base, whilst also positioning itself for 3G.
In recent times, Vodafone has pressed ahead with GPRS (on a heavily scaled back basis), and its much vaunted Rural Highways Project is now just a shadow of its former self.
Vodafone's future in Australia is, therefore, clearly at the crossroads, as the investment has just not worked out. Vodafone has also failed in satisfying its original licensing condition (since waived by the Federal Government) of selling down to majority Australian owned interests by 2001.
A revitalised Vodafone may still occur but only by teaming up with someone else with deep pockets of cash.
WHAT OF THE OTHER MAJOR TELCOS?:
Within the region, only Hutchison Whampoa qualifies in this regard, as SingTel's foray into Optus has clearly stretched its available financial resources.
However, whereas Telstra cannot rely on Australian Government support for its future investment forays, SingTel can rely on the continued and active backing of the Singaporean Government.
It is, therefore, interesting to note that the Singaporean Government and Hutchison Whampoa are increasing their levels of co-operation and collaboration throughout the region.
VODAFONE'S PRESSURE POINTS:
In contrast, Vodafone PLC (hence, Vodafone, locally) remains under increasing pressure due to: 1) Ericsson's Q1 results and the fact that Vodafone was not spending anymore on CAPEX (ie: Vodafone is one of Ericsson's global customers); and 2) AOL Time Warner's Q1 loss and AOL goodwill writedown, which bodes unfavourably for Vodafone's forthcoming results (ie: based on its previous AirTouch, Mannesman, and Japan Telecom acquisitions).
It is, therefore, very likely that, as part of its full year results announcement in May, Vodafone will announce a huge loss, to accompany goodwill writedown's in the forward carrying value of its recent acquisitions (ie: since 1999), including AirTouch for GBP60B, and Mannesman for GBP101B.
According to London's Financial Times (25/04), "Vodafone shares ha(d) been hit further by worries that it could be forced (in May) to announce record write-downs on some acquisitions .... Since there is also a lack of visibility about future revenue growth, investors are sgetting nervous....'Write-downs will have a symbolic impact but the real worry is future revenues', says one Vodafone shareholder.'The concern is about where future revenues are coming from. The jury is styill out on this one, which is causing many shareholders to assume the worst'."
According to the Financial Times article, Vodafone's KPIs for Q4,01 (ie: to 31st March) "revealed that its global subscriber base had increased by just 1.3m in (Q1/02), almost a quarter of what it achieved in the (Q4/01). Some analysts predict that subscriber growth in the next quarter will be even slower".
IMPLICATIONS FOR VODAFONE IN AUSTRALIA:
So, what are the implications of all these events for Vodafone here in Australia?
They extend to the following:
1) Vodafone continuing to lose market share in Australia, whilst competitors such as Optus (through fierce discounting, and pursuit of high business and Government contracts), HTA (through product differentiation, high use customer targetting, 3G positioning, and a Sydney-Melbourne marketing axis) and Telstra (through its "safe harbour" status).
2) Vodafone is likely to retreat from underperforming markets in the months to come, with Australia being one such market at risk.
3) Australian ARPU for Vodafone fell to $57 during Q1/02, down from $58.40 in Q4/01. In contrast, Telstra's ARPU was down to $50 in H2/01, Optus' was ~$52 and HTA's ARPU was $69 (up from $66 @30 June).
4) With the exception of HTA, all other ARPUs continue in decline.
5) Unlike all other major carriers, Vodafone has neither a strong and supportive parent with "free cash flow" available, nor alternative base-line businesses which are essentially cash-flow proof. In Telstra's case, they have the benefit of incumbency and FCF in their basic telephony business. HTA has a strong and supportive parent in HWL, with its strong suite of businesses covering property, ports management, retail, energy, utilities, etc, and very strong FCF. Optus does not have a strong parent, but has a strong underlying business here in Australia, particularly focused towards the business end of the market. Vodafone, however, has nothing more available to it than the 2G wireless business. If then, local and global ARPUs for Vodafone are in decline, then Vodafone's underlying business presence will come under ever increasing threat here in Australia (as well as elsewhere).
6) The likelihood of Vodafone remaining intact in Australia is unlikely going into the future. The likely, however, of Vodafone teaming up with another major player in the Australian market, either on an exit basis, or on an infrastructure sharing basis, therefore, is quite high.
No matter which way you look at it, telcos in Australia are under increasing pressure which will continue in force until Vodafone's future here is finally determined, T3's outcome is finally resolved, and HTA's 3G business is finally launched on commercial basis.
TLS Price at posting:
0.0¢ Sentiment: None Disclosure: Held
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