Thursday, September 26, 2013

Fixed line phone hangups tell story of Telstra's long term transition

Telstra says its decision to cut 1,100 jobs from its operations division will not get in the way of winning lucrative new business from the National Broadband Network.

The decision was the result of a major restructure as the decline of traditional fixed line telephone connections continues.

There have been some dramatic changes for Telstra since its privatisation began right back in 1997.

So is this latest round of cuts a sign that Telstra's strategy is part of a new approach?

Telstra is no longer a company just known just for its copper wire network and phone lines into homes.

The first big change came in 2005, when the then-chief executive Sol Trujillo revealed a big decline in traditional fixed-line phone connections.

AUDIO: Telstra to trim more as it eyes NBN deal (AM)

He said this was because more customers were relying on their mobile phones.

More recently, consumers have been using new services like Skype, and there is also the threat of free calls from Apple's new operating system.

Telecommunications analyst David Kennedy says the old lines of the business are fading, but even new technologies are being superseded.

"The reason they've been forced to accelerate this sort of process is that a lot of the traditional business lines, especially for residential homes, public switched data network is in decline, but mobile and fixed broadband have reached a kind of maturity," he said.

"The connection growth has really tailed off over the last three years. So to maintain profitability the whole industry is now looking to reduce the cost base at a faster rate than they have done in the past."

With the shift to the NBN, Telstra has needed to become more efficient to compete.

And, of course, there is the unrelenting pressure to keep shareholders happy.

Under Labor, Telstra negotiated an $11 billion deal to decommission its copper network and to move customers over to the NBN.

Under the Coalition plan, Telstra might get even more work to get the NBN from the street corner to households using its copper wire.

But Mr Kennedy says it is not a done deal, and Telstra might need to trim even more staff.

"Telstra need to proceed with the sorts of efficiencies which they're implementing, irrespective of whether the NBN goes ahead or not - or in what form," he said.

"We now have a new government and its likely that the old copper network will continue to operate in some shape or form. If Telstra's going to operate the underlying copper then it's going to need to do so on a more efficient basis."

Economist warns GFC fallout yet to hit as world marks Lehman Brothers collapse anniversary

Five years after the collapse of Lehman Brothers, economists are warning the worst fallout from the global financial crisis is yet to hit Europe and parts of Asia.

The concerns come as the US Federal Reserve decides just when to start scaling back its massive economic stimulus program, which has so far succeeded in keeping much of the world from falling back into crisis.

The Fed shocked financial markets when it decided to delay any slowdown in the money printing.

Tim Hodgson is senior investment consultant at the global pension fund advisors Towers Watson.

He argues that the current era of cheap and easy money from central banks might need to be extended.

"I think it's changed more than just the financial world. But there's a lot of repair still to do," he said.

"So it's clear that despite progress in banking systems to get risky assets off balance sheets, improve tier-one capital ratios, I don't think anybody thinks that banks are home and dry yet, particularly, I would argue, in Europe."

Audio: Europe, Asia still at risk from GFC fallout (The World Today)

He says the economy - and broader society - is yet to recover from the Lehman Brothers collapse.

"Never before in history have we had this level of monetary stimulation ,and for growth to be so disappointing," he said.

"The growth response to the level of stimulation says to me that the old linkages that we expected are broken."

Monetary measures cannot continue forever
An important question, Mr Hodgson say, is how long global monetary intervention can continue.

"I suspect it might last longer than we expect," he said.

"Where's the improvement going to come from? Where's the reset mechanism? There's still a lot of deleveraging to do. The European banks haven't really succeeded in deleveraging to any material extent. Australia - the households haven't deleveraged. So I'm not sure that we're on a healing process yet."

We often look at the global recovery through what is happening with Fed decisions in the United States, or what might be happening in Europe with the eurozone crisis.

In reality, emerging economies such as India are exposed to the day when all this cheap and easy money is going to be wound back.

Certain emerging markets benefited massively from that liquidity," Mr Hodgson said.

"The slight drawback, or the threat of drawback from the withdrawal of the Fed stimulus, has seen certain emerging countries really suffer massively."

And he warns that there will be serious social consequences if living standards do not improve.

"In a sense, what's happening in the likes of Spain is remarkable because historically, youth unemployment over 50 per cent of the population," he said.

"That has historically been associated with reasonably significant social unrest.

"And yes, as these economies adjust, it is perfectly possible that we'll see social tensions rise. I'm expecting geopolitical tensions to rise."

It is unclear exactly how long it will take the global financial crisis to run its course.

"It's a kind of five to ten year, maybe 15 year workout phase," he said.

"It's not all doom and gloom because the system adapts and the human spirit is generally forward looking and generally optimistic and I'm pretty sure that we will work through this and there will be a brighter dawn. But it might not be in 2014."

Monday, September 23, 2013

Spruikers back as property prices boom - ASIC warns self funded retirees are new targets

The recent steady rise in property prices has heralded the return of the property spruiker.

But this time around, the corporate watchdog is moving early to crack down.

The Australian Securities and Investments Commission says some sales pitches that offer advice on increasingly popular self managed superannuation funds could be breaking the law.

In the last major property boom a decade ago, the so called "get rich quick" experts made a name for themselves spruiking real estate.

LISTEN: Business editor Peter Ryan examines the return of the property spruiker.

Some investors made big money. Others less fortunate lost their life savings. And a few spruikers who broke the law went to prison.

But now with property prices on the rise, there is evidence that the property spruiker is back.

And self-funded superannuation funds are the new targets, according to ASIC commissioner Greg Tanzer.

"We're certainly seeing an increase in advertising that's specifically directed to SMSFs," he said.

"We know that there are a number of SMSF investors who, like many Australian investors, have an affinity with property. And there's nothing wrong with that, provided you understand the limitations, some of risks that you're taking on."

ASIC says some spruikers could be breaking the law.

Mr Tanzer says some spruikers who try to sell property into self-managed funds are are not licensed to offer financial advice.

"If you want to extol the virtues of investing in property, obviously that's something that's just subject to normal state and territory laws," he said.

"But it's where you are doing that in the context that you're encouraging that investment through an SMSF, ASIC's jurisdiction might be enlivened."

The one-time real estate agent turned consumer advocate Neil Jenman says there is no doubt the property spruiker is back.

"They've gone into their hibernation for a few years but they're certainly back in force at the moment," he said.

Mr Jenman has been running seminars of his own around the country, warning about the perils of bad advice - especially ones involving retirement savings.

"It's what they call FOMO. Everybody seems to be suffering from FOMO, which is fear of missing out," he said.

"And the spruikers have headlines. And one of them has actually got a headline - we are about to enter the greatest boom in history. Don't you be the one to miss out. Come to my free seminar and I'll tell you what to do, provided you give me $25,000 after that, of course."

Mr Jenman believes ASIC is right to be concerned.

"People are, without realising it, already losing thousands of dollars," he said.

"I mean, they're selling property in America for goodness sake. The difference is, if you went America to buy them yourself, you'd find that you'd probably be able to get them for nothing because they can't give them away in some parts of America."

But ASIC is moving quickly this time to head the spruikers off.

Mr Tanzer is keen to ensure history doesn not repeat itself.

"We've seen examples in the past where people have been burned by getting into property investments that might be overpriced, that might be promised but not delivered," he said.

The Reserve Bank is also worried and says the use of property in self-managed super funds is one area where households might be taking on risk.