Team D

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.

PerformanceTable 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 andMultimedia

1.27 1.49 1.53 1.54 1.60 1.18

* 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

PerformanceTable 1 : Operating Revenue and Net Profits from 2003 – 2007 (Financial Year)

Year 2003 2004 2005 2006 2007 2008*

Revenue (AUD)

5.55 6.36 6.92 7.19 7.47 5.83

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

- 32% 143% -49% 35% -*As on Dec 2007

PerformanceTable 3 : Operating Expenses (in Aud bn) from 2003 – 2007 (Financial Year)

Year 2003 2004 2005 2006 2007 2008^

Traffic expenses 1.36 (25%)

1.42(22%)

1.54(22%)

1.66(23%)

1.69(23%)

1.17(20%)

Selling & administrative

1.37 (25%)

1.46(23%)

1.46(21%)

1.52(21%)

1.63(22%)

1.54(26%)

Staff costs 0.75 (13%)

0.84(13%)

0.88(13%)

0.94(13%)

0.97(13%)

0.81(14%)

Cost of sales 0.66 (12%)

0.99(12%)

0.90(13%)

1.06(14%)

1.19(16%)

0.83(14%)

Capitalisation of costs¹

(0.095) (-3%)

(0.11)(-2%)

(0.13)(-2%)

(0.14)(-2%)

(0.13)(-2%)

(0.11)(-2%)

Repair & maintenance & others

0.15 (3%)

0.14(2%)

0.14(2%)

0.15(2%)

0.18(2%)

0.14(2%)

Total 4.2(76%)

4.74(71%)

4.79(69%)

5.19(72%)

5.54(74%)

4.38(75%)

¹ The bulk of the capitalisation relates to staff cost.^As on Dec 2007(%) shows each expense as a percentage of operating revenue

PerformanceTable 4 : Staff Statistics from 2003 – 2007 (Financial Year)

Year 2003 2004 2005 2006 2007 2008^

Average number of Employees

8,436 8,728 9,295 9,874 9,973 10,100

Revenue per Employee (in ‘000)

655 728 744 728 750 577

^As on Dec 2007

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.

Impact of Factors on Profitability

Factor Impact Reason

Maintaining operatingexpenses at no more than75% of operating revenue

High Making a profit is essentially a simple formula of revenue

minus expense. Once operating expenses go up, ceterus

paribus, profit will drop.

Generating higher revenue per

employee

High Employee value adding is critical to generate profit. As the

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 tocompete with other telcos such as Telstra. Given the

size ofAustralia, a wide reach is necessary for growth.

Competitive pricing andlaunching of new products

High Telecommunications market is fully commoditized and

consumers have a wide range of choices. Withoutcompetitive pricing and product/service refresh,

consumerswill flock to other providers.

Consolidating products and services

Medium Given the changing market (eg, fixed line subscription

reduction) consolidation is necessary. However, it isnecessary for the company to keep a mix of products

andservice 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.

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

Economic Activity – Historical Data And Forecasts

2005 2006e 2007f 2008f 2009f 2010f 2011f

Population (mn)

20.2 20.4 20.6 20.8 21 21.2 21.4

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(% y/y)

2.8 2.7 3.9 3.4 3.5 3.5 3.4

Manufacturing output (% y/y)

1.1 0 3.5 2.8 2.5 2.6 2.3

Unemployment rate (%)

5.1 4.9 4.4 4.6 2.5 2.6 5.9

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.

Risk Map

1

3

4

56

7

8

2

52

Likelihood

High

Moderate

Low

Low Medium High

Severity of Impact to Profits

1. Operating Expenses2. Employee Productivity3. Infrastructure Investment4. Competitive Pricing5. New Products and Services6. Consolidate Products and Services7. Leverage Major Brands8. FDI

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

Operating Expenses Maintaining operating expenses at no more than 75% of operating

revenue

Type of BI

Profit/loss/revenue data

Stock market standing Sales profile Advertising spending

and strategy Cost structure Market Shares

Source of BI

Annual reports Bloomberg/Reuters

reports Telecomm Budget

Employee ProductivityGenerating higher revenue per employee

Type of BI

Labour costs Demographic

information Organization structure

Source of BI

Government labour department report

Census report Trade associations Meetings/Discussions

Infrastructure Investment Investing in the company infrastructure

Type of BI

Regulatory Issues Distribution system Environmental Issues Market Value

Source of BI

Audit reports Government rules &

regulations Regional laws Commercials

Competitive Pricing Competitive pricing and launching of new products

Type of BI

Competitors pricing strategy

Consumer preferences Buying behavior R&D spending of

competitors Patents filed

 

Source of BI

Surveys/Interviews Ghost shopping Research, analyst reports Sales force meetings Observation at shops Consumer groups Academics who interface

with or advise target company

Thank YouNaikal Appasaheb Ang Pow Chew Chen Yuling Rujuta Kelkar Varun Jain