Cashed up Telstra fast-forwards to the future

By Stephen Bartholomeusz

Thodey believes Telstra’s achievements and improvements over the past five years and the long-term cash flows that are now locked in will not only give him the ability to satisfy expectations for improved shareholder cash returns but a licence from those shareholders to invest in future growth.

As Thodey said today, the acquisition is the first investment for Telstra’s Global Applications and Platforms group, which has a mandate to establish global growth vehicles in markets adjacent to Telstra’s core businesses "where software disrupts traditional business models".

While mindful of his shareholders’ appetite for increased dividends and capital management programs, Thodey has made it clear that he believes he needs to invest his burgeoning cash flows in future growth and is looking for opportunities that will make a material difference to Telstra’s bottom line in future.

Telstra had previously (over the past two years) invested $US61m for a 23 per cent stake in Ooyala, which has developed software that enables broadcasters, operators and media businesses to stream digital television and video content across multiple digital devices.

Ooyala already has a global presence – 135 million unique users in nearly 240 countries — and Telstra believes it can bring its expertise, capital and business relationships next to the business to build it further.

Thodey has recently begun articulating his broad vision for Telstra, which is sitting on a big lump of cash from its sale of its CSL wireless business in Hong Kong and most of its interest in the troubled Sensis directories business.

Today’s announcement that Telstra will pay $US270 million to increase its stake in the US video streaming and analytics company, Ooyala, to 98 per cent doesn’t comprehensively answer that question, but it does provide a live illustration of Thodey’s strategic thought.

Those five years were dominated by his dealings with the federal government and NBN Co, with subsidiary themes a continuing attack on an over-blown cost base, a massive effort to improve its dreadful customer service levels and with cleansing Telstra portfolio of under-performing and non-strategic assets.

While the detail of those deals is currently being renegotiated to reflect Malcolm Turnbull’s multi-technology vision for the rollout, Telstra is guaranteed payments with a net present value of at least $11bn as the NBN displaces its copper network over the next 20 to 30 years.

The most ambitious leg of the strategy, however, is to transform Telstra into a global technology company with an emphasis on software and applications and enterprise solutions, leveraging expertise it has or will develop or acquire into global niche markets.

Telstra also has, however, considerable experience and assets in the digital media space and sees Ooyala as a delivery platform for the next generation of television and video that it can leverage globally.

Read more here: Business Spectator


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