Source of Finance for New Projects - Case Study Example

Running Head: Name Institution Date Table of Contents Table of Contents 2 Introduction 2 Brief History 3 Core Business 5 Opportunities and Threats 6 Sources of Finance 7 Payout History 8 Projects 1 10 Risk Associated to the project 11 Capital rationing 12 Project 2 12 The process of manufacturing and laying the cable was the task of Alcatel-Lucent, which also supplied Telstra Corporation with two cables which ran across Bass Strait and its Tasman Sea cable.Alcatel-Lucent, is basing this project on the Alcatel 1620 Light Manager Submarine Line Termination Equipment that employs the use of Dense Wavelength division. The submarine cable project linking Hawaii and Sidney is estimated to be costing approximately A$ 300 million (Campbell, 2007). 13 Project Risk analysis 13 Project 3 14 Project Risk analysis 15 Capital rationing 15 Source of Finance for New Projects 15 Recommendations 16 Conclusion 17 References 18 Campbell, D. (2007) . International Telecommunications. Lulu.com, Australia. 18 Fergus, M. (2005).’ Telstra Says 2006 Earnings May Fall on Drop in Fixed-Line Calls ‘’ Bloomberge. 19 Introduction Organizational effectiveness is among the essential aspects that shape the operations of any organization. In a situation whereby an organization is in the process of coming up with strategies of enhancing change from its present state, to a future anticipated state, it essential that the change process is efficiently managed (Alan, 2005). The aim of this report is to conduct an analysis of Telstra Corporation Limited, its core operations and sources of finance. Other than this, the report aims at evaluating some of the projects undertaken by the company within the last five years and how the organization has managed the changes so far. Brief History The Telstra Corporation Limited (Telstra) is Australia’s number one and major telecommunication service provider offering a wide range of telecommunication services all over Australia including basic access services to many households and businesses, local as well as long-distance telephone call services, internet and mobile services. Telstra Corporation has telecommunication networks, distribution channels as well as integrated portfolio of assets such as Bigpond, Foxtel and Sensis. The origin of Telstra company, an Australian media and telecommunications firm dates back to 1901 when the common wealth government came up with the postmaster’s General department to take charge of all the local telephone, telegraph and postal services and to the year 1946 when the overseas Telecommunications Commission was established by the commonwealth government to take care of the international telecommunication services. Since then, Testra has undergone several transformations as well as being renamed on several occasions. The company has been transformed and named several times as follows: The Australian Telecommunications’ Commission, operating as telecom Australia in July 1975 and in January, 1989. The Company was incorporated as an Australian Public Limited Company in the year 1991. The Australian and overseas Telecommunications Corporation Limited in February, 1992. Telstra Corporation Limited in April 1993 while operating internationally as Telstra and regionally as Telstra in 1995. The company’s shares are listed on the Australian stock exchange and the New Zealand stock exchanges. Others are listed on the United State Stock exchange. The company has been able to receive several awards on several occasions from the world since 1998.In 1999 Telstra recorded Australia's largest-ever profit when it announced US$2.2 million in earnings for the financial year that ended June 30 (Alan 2005). Telstra planned to increase its existing Internet capacity between Australia and the United States by double before the beginning of the Sydney 2000 Olympic Games. Telstra built a $400 million It was then that it was incorporated as an Australian public property in the 1991.Once the Australia’s communications markets were opened allowing full competition in July 1997, Telstra Corporation underwent a process of partial privatization in November 1997. Through the process the commonwealth was able to sell about 33 per cent of shares to the general public. (Telstra Corporation report, 2000). Core Business Telstra has the responsibility of serving its major consumers with a wide range of products as well as services. These include mobiles, internet access, fixed lines as well as pay Television services. It has also the responsibility of providing mass marketing channels that include Telstra’s call centers, Telstra Shops and the dealer network. Telstra is therefore responsible for providing the unique needs of the Australia’s small as well as well as the medium businesses with mobile, fixed as well as broadband, data and internet solutions meant for business (Patrick 1997). Telstra Corporation therefore remains as one of the most, if not the most profitable telecommunication firm in the developed world market. Telstra is also the leading provider of network solution services to businesses and governments both in Australia and New Zealand offering data and mobile services as well as integrated voice solutions to about 1,500 businesses and government customers in Australia. Telstra also provides a growing range of unique and world leading products and solutions provided by its unique networks. Telstra serves more than 10 million mobile phone customers as well as providing fixed line services to approximately 9 million access lines in the process as well (Patrick 1997). Telstra is therefore focused on serving its consumers with better and improved telecommunication as well as information technology services for consumers in all the parts of Australia including the metropolitan, rural and all the remote parts of Australia. Opportunities and Threats Telstra acquires much of the opportunities in the telecommunication market due to its uniqueness. The uniqueness is derived from the fact that it dominates the mobile market, pay television as well as the directory market. This has made it more unique all over the world therefore providing it with more business opportunities. It has therefore been able to play a dominant role across a wide range of markets globally. There is no other telecommunication service provider in the Australia that has that level of dominance across a wide range of markets globally (Jannis, 2002). Telstra has also had increased capacity of innovation and expansion. For instance Telstra has invented seamless integration through the development of an integration Lab. The lab was established purposefully for acting as a compliment to the deployment of network solutions (Chetham, 2006). Being the leading telecommunication providing company in Australia, it faces major threats in business in terms of competition especially from companies such as Optus which is the second leading communications services provider in Australia. Initiatives to increase its service delivery capacity have also been threatened setbacks for instance Telstra bid for national broadcast network in the year 2008 had been declined by the Australian state government. This led to a decrease in Telstra share price from $4.12-$3.36 on 16th December 2008. Sources of Finance Telstra Corporation Limited’s main source of finances are derived from its service portfolios that include mobile telecommunications services, broadband access and content, data and internet services, management of Information Technology and telecommunications services of business customers, advertising, search and information services, as well as cable distribution services. All these represent the major services it offers to its consumers thereby deriving finances from the services. Telstra Corporation believed that a successful transformation through its current capital expenditure program would lead to increased shareholder returns in the preceding years of the firm’s operations. For example, in November 2005, the firm came up with a five year plan for transformation which was aimed at increasing its profitability. (Chetham, 2006). Telstra Corporation Limited also had its source of finances from its investments on public shares along side making other business deals with its related companies. Telstra made several offers to the public during the year 2006. The base offer size by the firm was approximately 2.15 billion shares. This was by the way of installment receipts. The retail offers consisted of three parts. These included the shareholder entitlement offer, the general public offer and firm offer. The Institutional offer set the price of the final installment and the final installment was announced by 20th November 2006 and was to be payable by 29 May 2008. A customer having the installment and doing the final payment by 2008 was to get one new share for each 25 installments held. Bearing in mind the belief that there are risks when vital changes take place in a company or firm’s business system, the firm’s plan entailed investing huge amounts of capital expenditure which was thought to peak come the year 2007.Majority of the benefits were however expected to be felt after the year 2008. Payout History Telstra got a lot attention from the press especially in 2006-2007 when its pay-out ratio experienced an edging of over 100%. Although the chart indicates that the company generated a lot of cash that can support the companies divided. Within the outlined yield and prices the big question that investors would basically ask is whether Telstra can maintain the increasing of dividends for a long time. After embarking on the T3 Prospectus in 2006, whereby the company intended to make two installments that captured 3 dividends for over 18 months and also further declare a 28% divided that is full ranked. The divided information of the company in three years after the IPO was as follows; Share price performance: previous three years Share In the 2009 financial year 2009 Telstra made more than $6 billion cash revenue out of mobile services. Dean (2010) highlights that as at June 9th 2010, Telstra’s current yield is rated at a 3% growth with over 10% dividend after tax. Telstra Projects Projects 1 On August 2006 Telstra unveiled an IP technology project worth $50 million. The project entailed establishment of a state of the art- Laboratory that was to test internet Protocol (IP) was to be delivered to approximately 5.3 consumers. Global partners of the company such as Cisco, Tellabs, Alcatel and Juniper will also be involved in the project. Mr. Greg Winn, the Chief operations manager stated that the aim of the laboratory is to ensure readiness of operational services while making a reduction on the technical and commercial risks that are linked to the solutions for network transformation. The laboratory depends on operational systems and a set of networks that allow joint collaboration of Alcatel-Lucent / Telstra in the provision of network solutions. This particular laboratory will assist in ensuring that Telstra provides innovative services and products with unprecedented reliability and robust. The chief operations officer of the organization further highlighted that the invented laboratory will also support production though through the use of network systems and technologies, that will support the existing operational environment (Tim 2006). Risk Associated to the project Tim (2009) argues that the move by Telstra to embark on a project to transform its network comprehensively was a bold move, however it was necessary for the company to put into the operating challenges that were facing it and also the change demand that the core consumers were actually experience. As a result this can be outlined as a major risk of this particular project that was heavily invested on. Although the project was a significant step for Telstra to take opportunity of the rising market environment, the project was to run for almost five years, managing changes in order to ensure that deliver occurs within the scheduled time frame of the project can be a difficult factor. In this case the project was initiated in 2006 August however within the time frame of the running of the project a lot challenges have occurred, for the economic recession which also adversely affected the Companies performance. Managing changes therefore was a significant risk for the project. Capital rationing The project cost was approximated as $50 million. Due to the fact that the initiative was a partnership between various companies and Telstra, capital will be derived from the various parties, however Telstra will be the largest contributor. In the context of this particular project, not much restriction will occur on the capital budget due to the fact that the initiative was to be supported by other partners. For instance Alcatel- Lucent will provide a wide range of experience and also deploy its networking solutions and give support to Telstra’s wireline network. Project 2 Telstra Corporation Limited has great future plans among them, a submarine cable linking Hawaii and Sidney. This project was proposed on the 28 March 2007 by Telstra Corporation. The cable which went live in the month of October, 2008 had a capacity of 1.28 terabits for every second in the future and presently at 80 gigabits for every second. The process of manufacturing and laying the cable was the task of Alcatel-Lucent, which also supplied Telstra Corporation with two cables which ran across Bass Strait and its Tasman Sea cable.Alcatel-Lucent, is basing this project on the Alcatel 1620 Light Manager Submarine Line Termination Equipment that employs the use of Dense Wavelength division. The submarine cable project linking Hawaii and Sidney is estimated to be costing approximately A$ 300 million (Campbell, 2007). Project Risk analysis The risks associated with this project can be incurred through cable losses through individuals vandalizing them for monetary purposes. This may have an adverse economic effect to the firm’s economic progress. Capital rationing The submarine cable project linking Sidney and Hawaii is to cost approximately A$ 300 million. A$ 300 is a actually the maximum amount placed on this particular investment due to the fact that other initial projects such as the 2006 August opening of the $50m IP network lab had still not yielded the desired returns and was still underway. Project 3 Telstra Corporation is also bringing the vastly popular Centro Smartphone in Australia an initiative undertaken in 2010. Presently sold in one million units, it is bringing all the power of a smart phone in a stylish package. The package contains a Bluetooth connection, memory slot, camera and consumers are able to expand Centro’s functionality. Telstra hope to sell it for about A$ 299 alongside its prepaid range. Centro will be able to make its users administer text messaging and email as well as keeping track of their daily activities, get well informed on the most recent news, take and share pictures and other functions in one small phone. Its full keyboard will also make it easy to speedily type text messages and emails with complete ideas and thoughts. Being the first provider of this distinctive smart phone in Australia, Telstra is indicating its commitment to giving customers the best choice of Pre-Paid products and services.Pre-Paid mobile phone users at the moment have access to a number of features not obtainable on standard mobile handsets with the addition of the Palm Centro to the Telstra Pre-Paid range. The Palm Centro will allow customers to stay on top of email and text messages, as well as access the Internet, manage appointments, view documents or make use of a massive amount of other productivity-boosting and pleasurable features (Trujillo 2006). Project Risk analysis The Centro Smart phone may be associated with many economic risks going by the fact that it incurs a lot of capital producing due its complicated nature. Other firms may come up with counterfeit products that are cheaper as compared to the Centro Smart phone and this may affect Telstra economic progress in terms of its profitability level from the product as per the expectation. Capital rationing The project is estimated to cost approximately $ 2.1billion to implement it to the fullest. This will act as a massive venture as it is intended to serve its many regional as well as international consumers. Capital for this project will be funded by foreign multinational firms as well as other sources such as interagency contracts by the treasury and finance departments. The firm will also be also relying on other industries support and this will be handled by the industry and development departments within the firm (Trujillo 2006). Source of Finance for New Projects The business drivers for Telstra to implement the Next networks and new projects have been made possible through the Governments, large Enterprises and small businesses support. This has been motivated by the need for a standard fully incorporated, more scalable, more steadfast, better performing and more secure platform that connect technologies and business practice thought to be of much benefit to the government and the Australian community as a whole. Telstra recognized this need and have made a multibillion dollar investment to transform the already offered networks into the Next networks to enable them to support applications that will work through fixed lines and wireless networks across the whole of Australia. The new project describes the way in which business will work in the future optimizing the Next IP and Next G networks (Trujillo 2006). Recommendations Telstra Corporation Limited’s strategies for enhancing organizational transformations have been very efficient in a way towards enhancing its performance in both the regional and international market and also maintaining its competitive advantage which is quite a challenge to many successful companies. A quick step should be taken to speed up and enhance new strategies as well as control and manage policies or platforms within the firm’s world class operation process specifically established for the growth and development. This strategy will enable the organization deliver competent solutions and services which will go hand in hand with the customers’ demands. In addition to these, the firms employees ought to be put into consideration especially where increased tasks arise due to the transformations and whereby the employees have to put in more effort more time working, it is essential for the organization to repackage employees salaries in order to steer clear of cases of strikes which may in the long run affect the whole transformation process. This will be attained through changing the firm’s payout scheme as well as the capital structure. Conclusion The analysis above brings an evaluation of Telstra in terms of its financial performance and investment undertaken through projects. The analysis brings out a clear picture of how the company has over the years strived to improve its performance. Telstra has faced many challenges during its life cycle however it is vital for the management to established effective strategies of enhancing organizational effectiveness (meeting stated objectives) and managing organizational change. References . Alan , R .(2005).Managing Services. Cambridge University Press. Chetham, A. (2006). The New Telstra, On the Move': A Progress Report on Telstra's Network Transformation', Telstra document, Campbell, D. (2007) . International Telecommunications. Lulu.com, Australia. Dean, M. (2010). Telstra – Stock Market Returns Inverted. Fusion Investing Analysis. Retrived Read More