Reporting season preview – telecommunications

Telecommunications companies like Telstra Corporation  (ASX: TLS), Optus – owned by Singapore Telecommunications (ASX: SGT), TPG Telecom Limited (ASX: TPM) and Telecom New Zealand (ASX: TEL) are generally less afflicted by weak economic conditions. People still use their mobile phones, internet connections and pay TV even during a downturn.  Here’s a rundown of the factors we’ll be looking at.

Growth in subscriber numbers – In 2011, Telstra added almost 1 million new mobile phone subscribers as it rolled out what was supposedly Australia’s fastest mobile network. Those subscribers need to come from somewhere, and with most Australians now having mobile phones, many of those subscribers are likely to have switched from other service providers.

Average revenue per user, or ARPU – As well as increasing the number of customers, telcos also try to increase the amount of revenues each subscriber brings in. They might do this through increasing prices, bundling services together or structuring plans to capture higher revenue generating services.

Content / media / expansion – This particularly applies to Telstra, with a 50% share of Foxtel. Has the company added new content to entice more subscribers, or encourage existing customers to subscribe for more content or channels?

Mobile vs fixed line – With the number of fixed line customers falling and the revenue they generate also falling, gross margins will be crimped as higher profit fixed line withers.

Voice vs data – This factor gives us some indication of where the company is earning most of its revenue. Have subscribers migrated away from direct calls to using products such as Skype, which typically use data rather than customers paying phone call rates?

Margins – Like all businesses, we want to know if margins have fallen or are increasing. Higher margins could mean that the company is gaining market share, driving efficiencies in its business and  or generating higher ARPU.

Uptake of 4G (Telstra) – With news that the company is switching off its old 3G network, we’d want to know how many users are switching to the Next-G network, which runs both 3G and 4G.

The Foolish bottom line

Given the demand for dividends, investors will also be closely watching telcos to see the dividends declared and franking levels. Many are likely to consider that the most important number when the companies report. Foolish investors will know that dividend yield is not the only important factor when selecting a company to invest in.

The introduction to this series can be found here, as well as links to previews of other sectors.

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Motley Fool writer/analyst Mike King doesn’t own shares in any company mentioned. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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