Optus is Australia's second largest telecommunications company. It has seen consistent revenue growth from 2003-2007, with operating expenses maintained below 75% of revenue. Key factors contributing to Optus' profitability include controlling expenses, increasing revenue per employee through productivity, infrastructure investments, competitive pricing and new products. Potential risks include rising operating costs, decreased employee productivity, under-investment in infrastructure, lack of competitive pricing and new products. Business intelligence on these factors can be obtained from annual reports, government data, surveys and research reports to minimize risks to Optus' profits.

1. Team D

2. Company Profile
 Optus is the second largest telecommunications
company in Australia.
 Acquired by SingTel in 2001
 Provides a broad range of communications services
including mobile, national and long distance services,
local telephony, international telephony, business
network services, internet and satellite services and
subscription TV.
 Divided into five major business areas comprising
Mobile, Business, Small Business, Wholesale and
Consumer & Multimedia.
 As at 2007, the company has a total of almost 10,000
employees.

3. Performance
Table 2 : Operating Revenue by Division from 2003 – 2007 (Financial Year)
Year 2003 2004 2005 2006 2007* 2008^
Mobile 2.92 3.45 3.81 3.97 4.18 3.27
Business 0.97 1.03 1.14 1.29 1.13 0.93
Wholesale 0.45 0.49 0.48 0.44 0.60 0.47
Consumer and 1.27 1.49 1.53 1.54 1.60 1.18
Multimedia
* In 2007, owing to change of strategy, the divisions were recategorised to Mobile, Business Fixed,
Wholesale Fixed and Consumer and SMB Fixed.
The revenue figures indicated could therefore not be compared directly to previous years.
^As on Dec 2007

4. Performance
Table 1 : Operating Revenue and Net Profits from 2003 – 2007 (Financial Year)
Year 2003 2004 2005 2006 2007 2008*
Revenue 5.55 6.36 6.92 7.19 7.47 5.83
(AUD)
Y-O-Y increase - 15% 4.7% 3.9% 3.9% -
Profit (AUD) 0.34 0.44 1.08 0.60 0.80 0.39
Y-O-Y increase
*As on Dec 2007
- 32% 143% -49% 35% -

5. Performance
Table 3 : Operating Expenses (in Aud bn) from 2003 – 2007 (Financial Year)
Year 2003 2004 2005 2006 2007 2008^
Traffic expenses 1.36 1.42 1.54 1.66 1.69 1.17
(25%) (22%) (22%) (23%) (23%) (20%)
Selling & 1.37 1.46 1.46 1.52 1.63 1.54
administrative (25%) (23%) (21%) (21%) (22%) (26%)
Staff costs 0.75 0.84 0.88 0.94 0.97 0.81
(13%) (13%) (13%) (13%) (13%) (14%)
Cost of sales 0.66 0.99 0.90 1.06 1.19 0.83
(12%) (12%) (13%) (14%) (16%) (14%)
Capitalisation of costs¹ (0.095) (0.11) (0.13) (0.14) (0.13) (0.11)
(-3%) (-2%) (-2%) (-2%) (-2%) (-2%)
Repair & maintenance 0.15 0.14 0.14 0.15 0.18 0.14
& others (3%) (2%) (2%) (2%) (2%) (2%)
Total 4.2 4.74 4.79 5.19 5.54 4.38
(76%) (71%) (69%) (72%) (74%) (75%)
¹ The bulk of the capitalisation relates to staff cost.
^As on Dec 2007
(%) shows each expense as a percentage of operating revenue

6. Performance
Table 4 : Staff Statistics from 2003 – 2007 (Financial Year)
Year 2003 2004 2005 2006 2007 2008^
Average 8,436 8,728 9,295 9,874 9,973 10,100
number of
Employees
Revenue per 655 728 744 728 750 577
Employee (in
‘000)
^As on Dec 2007

7. Key Contributing Factors
 Maintaining operating expenses at no more than 75% of operating
revenue consistently over the years.
 Generating higher revenue per employee (value-added)
progressively.
 Investing in infrastructure to achieve a technological edge.
 Competitive pricing as well as launching of new products.
 Consolidating products and services.
Leveraging major brands.


8. Impact of Factors on Profitability
Factor Impact Reason
Maintaining operating High Making a profit is essentially a simple formula of revenue
expenses at no more than minus expense. Once operating expenses go up, ceterus
75% of operating revenue paribus, profit will drop.
Generating higher revenue per High Employee value adding is critical to generate profit. As the
employee company expands, it is likely that employee numbers might
go up and employee productivity has to be sustained.
Investing in infrastructure High High quality infrastructure is necessary for Optus to
compete with other telcos such as Telstra. Given the size of
Australia, a wide reach is necessary for growth.
Competitive pricing and High Telecommunications market is fully commoditized and
launching of new products consumers have a wide range of choices. Without
competitive pricing and product/service refresh, consumers
will flock to other providers.
Consolidating products and Medium Given the changing market (eg, fixed line subscription
services reduction) consolidation is necessary. However, it is
necessary for the company to keep a mix of products and
service for effective competition.
Leveraging major brands Low Bells and whistles might appeal to a small segment of the
market but in general consumers will prefer basic services
and functions.

9. Potential Events that affect Factors
 To distil the potential events, the
following was done:
 5 Forces
 PEST
 Economic Activity Forecast
 Industry Forecast
 Mobile

Broadband

Fixedline

10. Economic Activity – Historical Data
And Forecasts
2005 2006e 2007f 2008f 2009f 2010f 2011f
Population 20.2 20.4 20.6 20.8 21 21.2 21.4
(mn)
Nominal GDP (US$ ) 711 753.7 876.5 908 908 904.2 914.2
GDP per capita (US$) 35,277 37,006 45,598 43,686 43,251 42,647 42,703
Real GDP growth 2.8 2.7 3.9 3.4 3.5 3.5 3.4
(% y/y)
Manufacturing output (% 1.1 0 3.5 2.8 2.5 2.6 2.3
y/y)
Unemployment rate (%) 5.1 4.9 4.4 4.6 2.5 2.6 5.9

11. Potential Events that affect Factors
 A highly mature and competitive telecoms sector.
 Greater take-up of 3G services (forecast – 27% in 2007 to 75%
in 2012).
 High levels of broadband take-up remain in place (forecast –
29% in 2007 to 69% in 2012).
 The fixed-line sector is in disarray, with the number of lines in
service set to drop over the next five years (forecast – 9.7m in
2007 to 8.8m in 2012).
 FDI is perceived as being hamstrung by excessive taxes and
bureaucracy.
 The government is considering reducing corporate tax levels.

12. 2
5
Risk Map
Likelihood
3 5
6
High
7 4
2
Moderate
1 1. Operating Expenses
2. Employee Productivity
3. Infrastructure Investment
4. Competitive Pricing
Low 5. New Products and Services
8
6. Consolidate Products and Services
7. Leverage Major Brands
Low Medium High 8. FDI
Severity of Impact to Profits

13. Type and Source of BI to minimize
High Risk Events/Factors

14. Operating Expenses
Maintaining operating expenses at no more than 75% of operating revenue
Type of BI Source of BI
 Profit/loss/revenue data  Annual reports
 Stock market standing  Bloomberg/Reuters
 Sales profile reports
 Advertising spending and  Telecomm Budget
strategy
 Cost structure
 Market Shares

15. Employee Productivity
Generating higher revenue per employee
Type of BI Source of BI
 Labour costs  Government labour
 Demographic information department report
 Organization structure  Census report
 Trade associations
 Meetings/Discussions

16. Infrastructure Investment
Investing in the company infrastructure
Type of BI Source of BI
 Regulatory Issues  Audit reports
 Distribution system  Government rules &
 Environmental Issues regulations
 Market Value  Regional laws
 Commercials

17. Competitive Pricing
Competitive pricing and launching of new products
Type of BI Source of BI
 Competitors pricing  Surveys/Interviews
strategy  Ghost shopping
 Consumer preferences  Research, analyst reports
 Buying behavior  Sales force meetings
 R&D spending of  Observation at shops
competitors  Consumer groups
 Patents filed  Academics who interface
with or advise target
company

18. Thank You
Naikal Appasaheb
Ang Pow Chew
Chen Yuling
Rujuta Kelkar
Varun Jain