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Telstra: once bitten, twice ... why not?

The mobile market in India, I recently learned, is racing towards 300 million -- and doing so at a rate of 8.77 million new subscribers per month, according to the latest government figures.
Written by David Braue, Contributor

The mobile market in India, I recently learned, is racing towards 300 million -- and doing so at a rate of 8.77 million new subscribers per month, according to the latest government figures.

That's per month. Three months from now, India will have more new mobile subscribers than we have people in Australia. Thailand's mobile market is growing at 20 percent annually and its broadband demand at 100 percent. China Mobile added 53.2 million customers in 2006 and has now passed the 300 million subscriber mark -- an average of 4.43 million new customers monthly.

This kind of growth is what happens when carriers tap into fast-growth markets where ever-expanding mobile networks are connecting more people than ever before. New broadband Internet services are being snapped up with equal enthusiasm: Vietnam's Internet user base, for example, grew 60 percent between 2006 and 2007, hitting the 17 million user mark.

Why in the world isn't Telstra, whose executives love reminding us how their every breath is dedicated to increasing shareholder value, getting in on this?

The answer probably lies in Telstra's failed venture with Hong Kong carrier Pacific Century CyberWorks (PCCW), which tied up Telstra in the Reach undersea cable venture -- a colossal failure that painted more than AU$1 billion across Telstra's books in big, bright, red letters.

Shareholders were understandably unimpressed -- and that experience seems to have cast a pallor over Telstra that apparently remains to this day.

Score one for investment prudence, but one would think that a company growing as slowly as Telstra is -- revenues have only increased from AU$20.2 billion in 2002 to AU$22.75 billion last year, an annual growth rate of just 2.41 percent -- would be eager to tap into new revenue streams.

Right now, Telstra's overseas investments include New Zealand subsidiary TelstraClear, Hong Kong mobile provider CSL New World, and a mixed portfolio that generated AU$1.6 billion -- most of which came from TelstraClear -- that at 8.4 percent growth was Telstra's fastest-growing segment.

Heck, smaller companies like m2m Corporation are doing it: m2m recently signed a reseller agreement with Vietnam Multimedia Corporation, an ISP that has five million subscribers and will pay m2m subsidiary Profit Way Technology (PWT) a fee per subscriber to sell VoIP and related services in that country. m2m is on the investment warpath, having pursued similar agreements in Singapore, Hong Kong, China and Australia.

Why can m2m do it and Telstra can't? Telstra does have Australia's richest base of technical expertise, and Australian technologists are well respected right across Asia.

Since there are three billion people within 12 hours' flight of Sydney and many of them still don't have phones or Internet connections, bringing that technology overseas would seem to be like shooting fish in a barrel.

Doing this, however, would force Telstra to redirect its precious profits -- which dropped from AU$6.1 billion in 2005 to AU$4.6 billion in 2006 and only just edged up slightly in its most recent set of results -- away from providing dividends, which keep shareholders happy, and into its AU$4.5 billion in cash reserves, which will give it clout in negotiating overseas partnerships.

So far, its limited exposure to Asia, and lack of exposure outside of Hong Kong's oversaturated mobile market suggests an almost unhealthy level of risk aversion.

When Telstra does look outwards, it is with blinkers on. The company loves to argue that it has the largest, fastest mobile network in the world, which may be true now but demonstrations at the recent GSMA World Mobile Congress -- where 60Mbps LTE (Long Term Evolution) technology was demonstrated to eager attendees -- suggest Telstra's lead may be ephemeral.

Perhaps most interesting is how Telstra is distracting attention from the Asian opportunities in which it is not investing. Telstra's results compare its 12.5 percent mobile services annual revenue growth with lower growth rates for carriers in the UK, Spain, France, Italy, and Japan; nary an Asian rival is listed.

Neither is Deutsche Telekom, a massive carrier that operates in 11 countries, and whose mobile business -- which at 20.7 billion euros (AU$35.3 billion) brings in more money than all of Telstra's businesses combined -- grew 12.2 percent from 2006 to 2007. Expect this to increase after Deutsche Telekom this week took a 20 percent interest in Greece's Hellenic Telecom (OTE), which itself has invested heavily in Bulgaria, Macedonia, Romania, and Albania.

Successful or not, what do European carriers have to do with the Australian mobile market? Why isn't Telstra comparing its growth with that of India's Reliance Telecommunications, which has 41 million mobile subscribers and grew revenues by 7.4 percent quarter-on-quarter? Or Bharti Airtel, which has more than 50 million subscribers and still grew mobile revenues by 59 percent between fiscal 2006 and 2007?

India, like many other countries in Asia, is far behind Australia in terms of 3G rollouts; Telstra could create massive opportunities by bringing a Next G equivalent to Thailand, Taiwan, Cambodia, Indonesia, India, Pakistan, or other up-and-coming countries near here.

Such a service could support both mobile telephony and fixed line-equivalent broadband, killing two birds with one stone and linking Telstra's future to that of Asian telecommunications.

Consider also that Telstra built the whole of Next G across a country the size of Australia for just AU$1.1 billion; would it really cost much to replicate this in, say, Vietnam, which has four times as many people and an increasingly tech-savvy population?

Instead, Telstra is focusing on its Australian infrastructure, then using it to milk Australian customers for all they're worth. Despite being fully privatised, the company's strategy is so narrowly focused on this country that it's still acting like a government body.

Lest this be misinterpreted as a missive that's unfairly targeting Telstra, let me point out that all of Australia's other major telcos -- Optus, Vodafone, Primus, and 3 -- are subsidiaries of overseas companies that have already looked offshore and found steady sources of revenue in the Australian market. I can't criticise their lack of overseas investment because none of them would be in this market if it weren't for overseas investment.

As Australia's only locally-controlled major telecoms provider, Telstra is in a unique position to make moves in Asia. But as long as Telstra's management team seems bent on litigating its way to local market domination, such vision will have to be left to others.

Is Telstra playing it smart, or is its fear of getting burnt again causing it to miss out on opportunities? Does Telstra's biggest growth potential lie in Australia or outside?

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