Telstra and all that cash

The AFR today speculates on the possibility of a Telstra $6 billion share buy back. This follows the sale of CSL and planned sale of autohome.

However, Telstra has repeatedly indicated it is seeking opportunities to expand. It, like most incumbent telcos, has struggled with how to be a successful entrant when its core skill has been managing networks.

When Telstra sold TelstraClear in 2012 there was speculation that Telstra was shaping for a go at Telecom New Zealand.  That was dismised with the revelation that the deal included non-compete clauses.

This was confirmed when the deal cleared its last hurdles in October 2012. There are few details of the non-compete clause available. The last item referred to said;

The takeover includes a non-compete cause, of unknown duration, that prevents Telstra entering the NZ market.
Regardless, most analysts dismiss the notion that cash-rich Telstra is clearing the decks for a run at Telecom. Telecom is struggling to turnaround declining profits at a time when Telstra is eyeing high-growth opportunities at home, and in Asia.

The interesting fact is that Telstra has been divesting its investments in Asia.  The AFR article concludes "Telstra has long pledged to increase the amount of revenue it generates from Asia, and Thodey is chasing corporate customers in the region with cloud computing and telecommunications services."

The reality is that the most important market to secure first is New Zealand, because most corporations now run their A/NZ operations together.  The second is that no matter the current financial state of Telecom, the synergies between the two businesses are immense.  The ability to operate the New Zealand mobile business as a component of the Australian one is alone worth a lot.

At the time of the original speculation the biggest barrier wasn't the non-compete clause, it was that Telecom still owned its asset - AAPT. That is now resolved as well.  The only other impediment is New Zealand regulation about domestic ownership, a hurdle that would not be hard for the Kiwi Government to deal with if the suitor was Telstra.

An acquisition of Telecom is one of the few cases where Telstra could genuinely say it was investing the money better than Telstra shareholders could on their own.