Telstra drops pants, but shows little

Telstra's half-yearly results last week showed the company can cut margins to acquire a lot of customers, but it didn't offer any evidence of a successful longer-term strategy.

There weren't too many surprises when David Thodey announced the results last week. Profit was down 35 per cent, slightly more than expected, but the market was satisfied that this was the result of costs associated with higher than forecast customer acquisitions: the company took on almost 1 million extra customers in the last six months, mostly on its mobile network.

It's not sustainable growth, of course. Ovum analyst David Kennedy says it's basically emptied its war chest. Still, these new customers will flow through to provide good revenue growth in the second half of the year.

IBRS analyst Guy Cranswick says he was surprised that it cost so much to acquire these customers. If you take on so many extra customers wouldn't you expect to see higher growth in total revenue?

The bigger question is, where does Telstra turn now for new revenue streams? It's the key part of Thodey's four-part transformation program, which has three other parts, being acquire customers, improve customer satisfaction and simplify the business.

Royal Bank of Scotland's telco analyst Ian Martin says the market will be keen to hear the telco's strategy for Sensis, which will be announced in a few weeks, but is sceptical about the company's media aspirations. Like many, he recognises the potential for growth in network application services for enterprise customers. Yet even in this space Telstra's revenues are flat.

In fact it's hard to find any area where the company is able to demonstrate new areas of high growth potential. If it is going to cut margin in one area of the business, the race is on to create new streams to keep profits from falling. Or is it destined to a future as a utility player with a good mobile network and not much else?

Running time: 25 minutes, 50 seconds