Friday, August 13, 2010

Australia - Telstra say incumbent monopoly rent is gone forever

[the australian] AFTER a $20 billion investment with little or nothing to show for it, the stark reality is the company has to start all over again.

Chief executive David Thodey was right to draw a line in the sand and set new, significantly lower benchmarks for the company. But the near 10 per cent fall in the share price, wiping $3.9bn from the company's value, tells you shareholders have had enough.

That's more than $1bn the company has vowed to spend in product promotion and customer service to put an end to sustained market-share erosion.

The share price reaction would not have surprised anyone at Telstra, and in fact Thodey's presentation yesterday was excellent in the scheme of things, even if the market didn't like the message.

Beyond the short-term hip-pocket concerns, the overwhelming good news -- if you take Thodey at his word -- is that finally someone is approaching the structural problems from the side of the customer.

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In theory, better customer service should multiply sales.

Thodey admits incumbent monopoly rent is gone forever -- which helps explain why he was prepared to listen to Stephen Conroy about the money on offer to participate in the NBN build -- but the company will be on a more sustainable footing.

The market was not primed for patience, given new concerns offshore. Thodey is not talking about slashing margins as a temporary measure.

Delivering bad news once is not career-ending, but the pressure is now on to deliver the changes promised and to show signs the strategy is working by this time next year.

Just to add to the pressure, Optus's Paul O'Sullivan reported his best quarterly earnings growth for five years and his seventh straight quarter of double-digit revenue growth.

For Thodey, that is the price of incumbency. If managed badly it can prove more of a curse than a benefit, which explains why he is talking up massive changes.

Telstra chief executive David Thodey lowers benchmarks after profit fall

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