Australia’s Telstra failing to plug earnings hole with myriad of investments

Sun Nov 27, 2016 3:26pm EST
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By Tom Westbrook

SYDNEY (Reuters) - The ability of Australian telecoms company Telstra Corporation (TLS.AX: Quote) to offset the fall in its traditional revenue streams by diversifying into a range of technology and other businesses is in doubt.

So far, Telstra's funding of 44 startups since 2013, the A$235 million ($175 million) spent acquiring 18 health-related companies, the purchase of more than 30 companies by its venture-capital division, and its financing of a mining technology arm, have come to little.

Lumped together with the company's underperforming media department, the entire gamut of these operations – which include a range of technology businesses from cloud computing to app delivery specialists - contributed just A$908 million, or 3.4 percent of Telstra's income, in the fiscal year ended in June.

In particular, high hopes for a $330 million investment in tech startup Ooyala, a video platform, have all but faded, with Telstra mostly writing off in August what it called "a rapidly growing business" six months earlier. Ooyala was the biggest single investment by Telstra’s venture-capital arm.

Telstra did not directly answer Reuters' questions about the performance of specific investments or make its CEO Andrew Penn available for interview for this story.

In a written statement, Telstra said all of its investments were consistent with aspirations to become a "world-class technology company". The company also responded by noting recent public remarks by Penn, who told an investor briefing in Sydney on November 17 that after making “a number of acquisitions” the company is “consolidating” its investments in new businesses.

Like incumbent telecoms around the world, Telstra is facing falling profits from its traditional fixed-line networks and competition is squeezing mobile margins.

Telstra is conducting a review of its capital allocation as a result of the pressures. That prompted rating agency Standard & Poor's to revise its outlook on the company to negative, concerned that Telstra may take on more debt at a time when competition among mobile operators is intensifying. Any change to Telstra's A/A-1 rating would increase its cost of capital.   Continued...

A man and power lines are reflected in a Telstra poster adorning a public telephone in Sydney, Australia, August 13, 2015. REUTERS/David Gray/File Photo