The economic outlook and trends for the Australian mobile telecommunications industry Tim Smart Macquarie Research Equitie...
Presentation outline <ul><li>Overview of recent developments </li></ul><ul><li>Assessing the current market in Australia <...
<ul><li>Attempt to reduce/eliminate  handset subsidies in 2002 </li></ul><ul><ul><li>Telstra introduces “more4you” </li></...
<ul><li>Hutchison 3G launches in April in Sydney and Melbourne and in July launched in remaining capital cities </li></ul>...
<ul><li>European regulators aggressively reduce mobile termination rates </li></ul><ul><li>Hutchison launches 3G services ...
Global wireless indices <ul><li>Notes:  </li></ul><ul><li>Asian index excludes Japan </li></ul><ul><li>All indices are in ...
Australian mobile market snapshot – key metrics <ul><li>Penetration at 71.8% at  June 2003  </li></ul><ul><li>Telstra and ...
Mobile profitability – a three part equation SUBSCRIBERS:   mobile penetration x market share TIMES ARPU:   outgoing voice...
<ul><li>Subscriber growth – has been the dominant component of the mobile profit equation… </li></ul><ul><li>…BUT growth i...
Singapore market – growth slowing Source: Infocomm Development Authority, Singapore <ul><li>With minimal market growth, fo...
So, where is Australia? Source: MRE <ul><li>Subscriber growth is likely to slow dramatically after 2004, with penetration ...
ARPU – voice under pressure <ul><li>Voice yields falling at double digit rates and likely to continue.  Why? </li></ul><ul...
Source: MRE <ul><li>Steady data growth driven by SMS </li></ul><ul><li>Little take-up of new data services </li></ul>Data ...
<ul><li>If voice yields fall at double digit rates (10%) as we expect and incoming termination rates decline at 5% pa (or ...
<ul><li>Handset refresh cycle is shortening </li></ul><ul><ul><li>Estimate 5.2m handset sales in 2003, an increase of 25% ...
<ul><li>Good news:  Average annual revenues growth forecast to be 6.3% pa for the next 5 years – above GDP level </li></ul...
Disclaimer:  Macquarie Equities (Australia) Ltd; Macquarie Equities (UK) Ltd; Macquarie Securities (USA) Inc; Macquarie Eq...
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Macquarie Research Equities The economic outlook and trends

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Macquarie Research Equities The economic outlook and trends

  1. 1. The economic outlook and trends for the Australian mobile telecommunications industry Tim Smart Macquarie Research Equities Phone: (612) 8232 4203 [email_address] www.macquarie.com.au/research In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. Please see disclaimer.
  2. 2. Presentation outline <ul><li>Overview of recent developments </li></ul><ul><li>Assessing the current market in Australia </li></ul><ul><ul><li>Snapshot – key industry metrics </li></ul></ul><ul><ul><li>Subscriber growth – racing towards the end of the track </li></ul></ul><ul><ul><li>Retention costs – handset subsidies fuelling subs growth and shorter handset refresh cycle </li></ul></ul><ul><ul><li>ARPU </li></ul></ul><ul><ul><ul><li>Voice revenues under threat </li></ul></ul></ul><ul><ul><ul><li>Data revenues – where is the vision? </li></ul></ul></ul><ul><li>Economic outlook – is consolidation needed? </li></ul>
  3. 3. <ul><li>Attempt to reduce/eliminate handset subsidies in 2002 </li></ul><ul><ul><li>Telstra introduces “more4you” </li></ul></ul><ul><ul><li>Vodafone introduces “no plans” and reduces contract subsidies </li></ul></ul><ul><ul><li>Optus wins market share, improves margins </li></ul></ul><ul><li>Handset subsidies reintroduced aggressively </li></ul><ul><ul><li>Fuels market growth (sub adds for 6 months to June 03, 7.5% greater than in corresponding 6 months in 02) </li></ul></ul><ul><ul><li>Penetration now up to 71.8% </li></ul></ul>Recent developments and trends - local
  4. 4. <ul><li>Hutchison 3G launches in April in Sydney and Melbourne and in July launched in remaining capital cities </li></ul><ul><li>Telstra, Optus, Vodafone marketing 2.5G services </li></ul><ul><li>Vodafone announces it will supply 3G services by 1H05, preference to share, rather than build infrastructure </li></ul><ul><li>Telstra,Optus remain non-committal on 3G timing – not in FY04 </li></ul><ul><li>ACCC investigates mobile termination rates </li></ul>Recent developments and trends - local
  5. 5. <ul><li>European regulators aggressively reduce mobile termination rates </li></ul><ul><li>Hutchison launches 3G services in UK, Italy and Sweden </li></ul><ul><li>Wi-fi growth accelerates – carriers looking to integrate with mobile data offering </li></ul><ul><li>Performance and take up of new data services (2.5G, MMS, 3G) mixed </li></ul><ul><li>The outlook for mobile carriers continues to be difficult globally </li></ul>Recent developments and trends - global
  6. 6. Global wireless indices <ul><li>Notes: </li></ul><ul><li>Asian index excludes Japan </li></ul><ul><li>All indices are in US$ </li></ul><ul><li>Source: Bloomberg </li></ul>
  7. 7. Australian mobile market snapshot – key metrics <ul><li>Penetration at 71.8% at June 2003 </li></ul><ul><li>Telstra and Optus remain dominant </li></ul><ul><li>ARPU falling as prepaid increases and voice yields fall </li></ul>Source: MRE
  8. 8. Mobile profitability – a three part equation SUBSCRIBERS: mobile penetration x market share TIMES ARPU: outgoing voice revenues + incoming termination revenues + data revenues MINUS COSTS: cost of retention / acquisition (incl. handset subsidies) + other operating costs = MOBILE PROFITABILITY
  9. 9. <ul><li>Subscriber growth – has been the dominant component of the mobile profit equation… </li></ul><ul><li>…BUT growth is finite </li></ul><ul><li>Reintroduction handset subsidies and H3G entry has accelerated growth again </li></ul><ul><li>Australia now at 71.8% penetration </li></ul><ul><li>Penetration forecast to reach 80% by FY05 </li></ul><ul><li>Having been the dominant component in industry profitability equation, it will soon become least important part of equation </li></ul><ul><li>Singapore market growth has slowed dramatically since penetration neared 80% </li></ul>Subscribers – racing towards the end of the track
  10. 10. Singapore market – growth slowing Source: Infocomm Development Authority, Singapore <ul><li>With minimal market growth, focus of players is on winning share from each other </li></ul><ul><li>Competition intensifying </li></ul>
  11. 11. So, where is Australia? Source: MRE <ul><li>Subscriber growth is likely to slow dramatically after 2004, with penetration growing slightly above 80% level </li></ul>
  12. 12. ARPU – voice under pressure <ul><li>Voice yields falling at double digit rates and likely to continue. Why? </li></ul><ul><li>Lack of industry subs growth will intensify competition for existing subscribers. Reducing voice one way to win market share. </li></ul><ul><li>3G introduces massive new capacity. Little incremental cost so voice will be priced down to increase network utilisation. </li></ul><ul><li>Incoming voice revenues subject to regulatory threat (ACCC review) </li></ul>Source: MRE Source: MRE
  13. 13. Source: MRE <ul><li>Steady data growth driven by SMS </li></ul><ul><li>Little take-up of new data services </li></ul>Data ARPU – key to the industry’s future
  14. 14. <ul><li>If voice yields fall at double digit rates (10%) as we expect and incoming termination rates decline at 5% pa (or worse), then data ARPUs would need to grow at a compound rate of 20% pa just to maintain overall ARPU in 5 years time. </li></ul><ul><li>MMS, 2.5G, 1x and 3G networks all in place…BUT service delivery is poor and take up minimal </li></ul><ul><li>SMS remains main component of data revenues </li></ul><ul><li>Issue: Can telcos deliver content and services that customers actually want? </li></ul><ul><li>Evidence in Australia to date is not positive </li></ul><ul><li>Some offshore carriers appear to doing a better job </li></ul><ul><ul><li>Sprint PCS Vision saw a 62% subscriber growth from 1.3m in 1Q03 to 2.1m in 2Q03. Data ARPU per subscriber also grew during the same period by 29%. </li></ul></ul>Data ARPU – key to the industry’s future
  15. 15. <ul><li>Handset refresh cycle is shortening </li></ul><ul><ul><li>Estimate 5.2m handset sales in 2003, an increase of 25% on 2002. Subscriber growth in 2003 is 16%. </li></ul></ul><ul><li>Colour screen phones, cameras and polyphonic ringtones encouraging refresh cycle BUT accompanied by increasing subsidies. </li></ul><ul><li>Potentially dangerous combination – handset life cycle down, handset subsidies up… </li></ul><ul><ul><li>… good for handset vendors (and dealers) but not good for carriers. </li></ul></ul>Costs – retention / acquisition costs increasing
  16. 16. <ul><li>Good news: Average annual revenues growth forecast to be 6.3% pa for the next 5 years – above GDP level </li></ul><ul><li>Bad news: Good revenue growth does not mean attractive returns eg. aviation industry </li></ul><ul><li>Key issue: How much capital is invested in the industry </li></ul><ul><li>Consolidation – is it needed? </li></ul><ul><ul><li>…not at the service layer – sufficient industry size, diversity and niches to justify many service providers </li></ul></ul><ul><ul><li>…issue is at the infrastructure level </li></ul></ul><ul><li>Number of 3G networks will be the dominant factor in determining returns for the industry over the next 5-10 years. </li></ul>Economic outlook
  17. 17. Disclaimer: Macquarie Equities (Australia) Ltd; Macquarie Equities (UK) Ltd; Macquarie Securities (USA) Inc; Macquarie Equities (Asia) Ltd; Macquarie Securities (Asia) Pte Ltd; and Macquarie Equities New Zealand Ltd are not authorised deposit-taking institutions for the purposes of the Banking Act (Commonwealth of Australia) 1959, and their obligations do not represent deposits or other liabilities of Macquarie Bank Ltd ABN 46 008 583 542. Macquarie Bank Ltd does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. © Macquarie Group. This research has been prepared for the use of the wholesale clients of Macquarie Bank Ltd and its wholly-owned subsidiaries (the “Macquarie Group”) and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice and accurately reflect the analyst(s)' personal views at the time of writing. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. This research has been issued and distributed in Australia, by Macquarie Equities (Australia) Ltd (ABN 58 002 832 126), a licensed securities dealer and a participating organisation of the Australian Stock Exchange Ltd; in the UK and Germany, by Macquarie Equities (UK) Ltd, which is authorised and regulated by the Financial Services Authority (No. 3704031). Its related body corporate, Macquarie Bank Ltd, is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority (the investments and investment services the subject of this research are not available to private customers in the UK); in the US, by Macquarie Securities (USA) Inc. Any transactions by US persons in any security discussed in this research must be carried out through Macquarie Securities (USA) Inc; in Hong Kong, by Macquarie Equities (Asia) Ltd, a registered dealer under the Securities and Futures Ordinance; approved for distribution in Singapore by Macquarie Securities (Asia) Pte Ltd, a licensed dealer and investment adviser in Singapore. All enquiries from Singapore residents in relation to securities referred to in this research should be directed to Macquarie Securities (Asia) Pte Ltd; in New Zealand, by Macquarie Equities New Zealand Ltd, a licensed sharebroker and member of the New Zealand Stock Exchange. The Macquarie Group of companies and their officers and employees may have interests in securities referred to in this research, including being directors of, or providing investment banking services to, their issuer. Further, they may act as market maker or buy or sell those securities as principal or agent, and as such may effect transactions which are not consistent with the recommendations (if any) in this research. The analyst(s) principally responsible for the preparation of this research receives compensation based on the Firm's overall revenues, including investment banking revenues. The reader should assume that the Macquarie Group receives or has received compensation in connection with these relationships. Disclosures applicable to research with respect to issuers, if any, mentioned herein, are available at www.macquarie.com.au/research/disclosures, through Macquarie Research Equities at eqgmagres@macquarie.com or your Macquarie representative.
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