Australia | Jun 08 2006
Hi Rudi,
I saw you piece on telecoms and thought I would send you a few words from the viewpoint of an engineer/investor who has worked in management roles in telecoms (fixed and mobile) in Australia and overseas.
1. Do not forget the laws of physics…meaning RF/signals etc travel much better through nice cables especially optic fibre than through the air. No matter how much those mobile types rattle on about high speed wireless, it will never match the speed of fixed networks. In cities with a good backbone infrastructure, the best Internet you will ever get will come via cable, wires etc and it will be more cost effective as well. For rural areas and cities with a less developed network backbone then maybe wireless wins. Even networks like "Unwired" are only "Unwired" to a point.
2. Everything that goes over the wireless network eventually hits the fixed network…people sometimes forget about this. In Australia this means that a large chunk of all mobile traffic hits the Telstra network and they get some dollars for this. In short, Telstra gets a piece of the action even is you use "3" to make your calls. (Even if you use Skype you have to connect to a fixed network sometime..and who most likely owns that network?)
3. Zzzz….the demise of fixed line carriers is highly overrated. I recall people saying the same thing about DoCoMo in Japan while I was there. DoCoMo went through some pain and re-invented itself..and that is what Telstra will do. Sure they will end up smaller, but as long as the margins are good….investors will be happy. Same has happened to BT and a few other old incumbents.
4. 3G is not turning out quite the way the analysts and marketeers would have liked. 3G is hurting margins…. forget about ARPU (a silly KPI), people should focus on AMPU (margin per user) and that is where 3G hurts…all those costs in getting a new network running, handset subsidies, marketing and at the end of the day..it is a price war and the margins are not good.
So what does this all mean?
Well for me I would avoid mobile only companies like the plague. Even as they try and move into developing markets they will get hit with stiff competition and the margins will not be good. They are companies with essentially only one main product and that is never a good thing. I much prefer companies with the ability of offer a variety of services and I think Optus and Telstra and heading along the right path with fixed, mobile Pay TV and internet services etc.
Telstra for all the negative press still has plenty of cash coming though the door..and if you look at the financials for Telstra it is in a lot better shape than many other Top 50 stocks. I am not sure why everyone is so negative..perhaps they are trying to guess the future impact of technology? The fact is, nobody knows how the battle between 3G, Wimax, ADSL etc etc will work out…but there are plenty of people who make their living by trying to pretend they do 🙂
Cheers,
Greg