Technology & Telecommunications

  • Is Telstra’s monopolistic power generating outstanding profits?

    rogermontgomeryinsights
    October 17, 2009

    With a 66% market share, Telstra’s monopolistic powers are in the news and generating quite a stir. The only problem is that the telco’s monopolistic powers are not stirring its profits.

    With a 90% share, Telstra dominates what used to be called the ‘local call market’. In the last decade mobile phone services have risen from 8 million to 22 million, internet penetration has risen from 30% to 79% of households, and despite unique anti-syphoning legislation which ensures free-to-air tv gets to show the big sporting events, pay tv has increased to 30% household penetration from virtually nothing in 1995.

    Despite this rapid growth in new technology and Telstra’s dominant landline market share, its profits are no higher today than they were ten years ago. And while its intrinsic value has risen slightly in the last two years, it has not registered impressive growth overall.

    The ‘rebalancing’ and ‘cannibalisation’ that the industry is experiencing, and the government wants, does not detract from the very high underlying growth factors in the telecommunications industry.

    Demand for high-speed services will exceed supply. By 2017 Fibre to the Household (FttH) will make our present broadband look like the dial-up systems of ten years ago and will be used by the telecoms, IT and media industries to deliver digital media services, applications, video content hosting and distribution. Whether Telstra will be able to take advantage of it and win is anyone’s guess.

    In fast-changing industries, working out who will dominate is difficult and therefore so is estimating an intrinsic value. In any event, Telstra in its current form has not been able to convert its dominant position and the strong growth in telecommunications demand into improving economic performance. There is little reason to believe that it will in the future.

    By Roger Montgomery, 17 October 2009

    by rogermontgomeryinsights Posted in Technology & Telecommunications.