SingTel Investor Day: Optus Overview and Strategy - Paul O'Sullivan Chief Executive, Optus
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SingTel Investor Day: Optus Overview and Strategy Paul O’Sullivan Chief Executive, Optus 11 July 2011
2 Forward looking statements - important note The following presentation may contain forward looking statements by the management of SingTel Group relating to financial trends for future periods, compared to the results for previous periods. Some of the statements contained in this presentation that are not historical facts are statements of future expectations with respect to the financial conditions, results of operations and businesses, and related plans and objectives. Forward looking information is based on management's current views and assumptions including, but not limited to, prevailing economic and market conditions. These statements involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in the statements as originally made. Such statements are not, and should not be construed as a representation as to future performance of SingTel Group. In particular, such targets should not be regarded as a forecast or projection of future performance of SingTel Group. It should be noted that the actual performance of SingTel Group may vary significantly from such targets.
Video: Queensland Disaster Rescue 3
4 Today 1 Optus overview 2 FY11 performance 3 Future opportunities and strategy
5 Today 1 Optus overview 2 FY11 performance 3 Future opportunities and strategy
6
Optus: integral part of an extensive group
Optus’ contribution to Optus’ contribution to
proportionate revenue1,2 proportionate EBITDA1,3
Others Others
1% 1%
35% Optus 30%
Optus 41% SingTel Regional
SingTel Regional
Group Group 45%
Mobile Mobile
24%
23%
Singapore
Singapore
1. Proportionate information is provided as supplementary data only – to show relative contribution from Singapore, Australia and other regional markets
2. Consolidated revenue plus proportionate share of associates revenue – 12 months to Mar 2011
3. Consolidated EBITDA plus proportionate share of associates EBITDA – 12 months to Mar 2011
7
We’re a large company and growing
Customers REVENUE (A$Bn) EBITDA (A$Bn)
• 9.1m mobile customers CAGR CAGR
+8% +12%
• 1m on-net telephony customers
• 960k on-net fixed broadband customers
• Key Business customers include ANZ, Tabcorp, DIAC and ATO
• Key Wholesale Partners include M2, Amaysim & Dodo
2002 2011 2002 2011
Customer Experience
• Over 260 Optus branded stores and over 9,000 retail outlets distributing NET PROFIT (A$M) FREE CASH FLOW (A$M)
prepaid products and services
• Approximately 2.5m My Account registrations (online)
• Approximately 1,000 staff in our national sales and telemarketing
operations in Consumer & SMB
• Over 5,000 Consumer & SMB call centre staff
Our people 2002 2011 2002 2011
• 10,090 employees
• Employee Engagement score 2% above Global Telco norm
8
Optus: three major businesses
Mobile OB/OWS (fixed) Consumer & SMB (fixed)
A$6.0bn A$2.0bn A$1.3bn
• 9.1m Optus subscribers • Full service provider to business and • HFC network covers 1.4m homes
– 4.8m Postpaid government, and wholesale services to
• Optus ULL service covers up to 2.9m
service providers
– 4.3m Prepaid premises
• Approximately 18,000 major buildings
– Includes 1.3m WBB subs • Over 1m on-net telephony customers
connected
• 31.9% subs share2; 30.7% revenue • 960k on-net broadband customers
• Australia‟s #1 satellite owner / operator
share3
• Data 40% of service revenue; non-
SMS data 18% of service revenue
26% EBITDA MARGIN 27% EBITDA MARGIN4 17% EBITDA MARGIN
1. Figures are for 12 months to 31 Mar 11, unless otherwise stated
2. As at 31 December 2010 (JP Morgan)
3. Service revenue for 12 months to 31 December 2010 (JP Morgan)
4. EBITDA margin excluding impact of the reversal of outpayment provision no longer required (including impact: 28%)
9
Our network: over A$16BN invested since 1992
Fibre/Coaxial Cable Satellite
• Inter-city (from Perth to Cairns – OVER 10,000KMs) • 5 currently in orbit delivering Pay TV to over 2M households
• Intra-city – OVER 12,000KMs • Currently constructing Optus 10, to launch in 2013
• Hybrid Fibre Coaxial – OVER 26,000KMs • 6 satellite earth stations
• Ownership in – 7 international cables Source: Optus Network Information: FY11
ULL
Darwin
• Over 1,200 DSLAM racks in 418 exchanges Cairns
B3 Satellite
• Over 70% of exchanges in metro areas C1 Satellite
• Delivers fixed voice and ADSL2+ broadband Port Hedland
Mt Isa D1 Satellite
to residential and business customers
D2 Satellite
Mobile Brisbane
D3 Satellite
• Over 9,000 base stations, incl approx 5,000 3G base stations SEAMEWE 3
• 3G network delivers 7.2Mbps data speed capability to 80% population Perth
Southern Cross
Canberra
• Fibre backhaul to 80% of metro base stations Adelaide
Sydney
Facilities LOCAL FIBRE RING EARTH STATION Melbourne
SWITCHING INTERNATIONAL FIBRE OPTIC
• 17 exchanges INFRASTRUCTURE
MOBILE COVERAGE
CABLE
LEASED CAPACITY
Hobart
• 1 dedicated hosting and data centre OPTUS FIBRE OPTIC CABLE
10
Growing cash flows and strong financial position
CAGR
S&P Rating
13% 1,206
967 1,015 AAA
903
742
AA
A+
A
2007 2008 2009 2010 2011
Note: All numbers are in A$m and are for FY ended 31 March A-
BBB+
• Net Debt A$1.4bn1 • Committed medium term bank
• Access to international facilities
BBB
debt capital markets - Total facilities A$1.2bn2
- US$500m 10 yr notes - Maturing 2014
BBB-
- HK$ 1bn 10 yr notes
1: As at 31 Mar 2011
- €700m 10 yr notes 2. As at 1 July 2011
BB-11
Optus’ brand positioning: Anything is possible
RATIONAL EMOTIONAL12 Today 1 Optus overview 2 FY11 performance 3 Future opportunities and strategy
13
Optus: recapping what we said last year
FY08-FY09 FY2010 FY2011
Begin Transformation Acceleration We said we would…
• Business stabilisation • Increase mobile growth momentum • Focus on maintaining mobile
• Re-start mobile growth to drive revenue share gains momentum
• Targeted investments: • Deliver initial customer experience • Drive to leadership in customer
- Reitz, 96% 3G, D3 differentiation and realise benefits experience and relevance
• Begin transformation • Transform fixed market structure • Exploit the NBN
via NBN advocacy
- Customer experience
- Corporate business
- Fixed on-net focus; resale exit
- G9 advocacyOCTOBER 2009 14
FY11: mobile was a year of two halves, with increasedConsumer
competition in 2H
Mobile service revenue share (%)
8.12 7.81 7.67
-0.6% -0.1% +0.6% 0.0% +0.1% +0.1%
42.4% 41.8% 41.7% 30.1% 30.7% 30.7% 27.4% 27.5% 7.44
27.6%
2H CY09 1H CY10 2H CY10 2H CY09 1H CY10 2H CY10 2H CY09 1H CY10 2H CY10
Source: JPMorgan15
Optus CE is stable while customer expectations are increasing
~5% improvement in satisfaction
Optus ‘Yes’ Meter results stable
with how we are servicing our
customers‟ enquiries in SMB &
We operate in an environment Consumer
~5% improvement in satisfaction with
of heightened awareness:
how we are servicing our customers‟
• Changing customer expectations enquiries in SMB & Consumer
• Increased regulator advocacy
~8% overall improvement in satisfaction
Building on our CE tradition... on how we bill our customers in SMB
SingTel Optus Lean ~8% increase in OWS customers‟
• 40 projects completed satisfaction in how we are resolving
• 51 projects in flight their service difficulties
• 1,953 people trained
~7% improvement in satisfaction
with how we connect and provision
Mar-10 Mar-11 our products for our OB Customers
Note: The „yes‟ Meter is independent “unsponsored” research undertaken to assess how Optus rates in Customer Experience relative to our competitors16
Optus plays a key role as the NBN becomes a reality
Structural Equivalence
separation of access
Cost-based Strong ACCC
pricing oversight17 Overall Optus exceeded market guidance in FY11 FY11 GUIDANCE FY11 OUTCOMES Revenue to grow at mid single-digit level Revenue A$9,284m Up 4% EBITDA to grow at mid single-digit level EBITDA A$2,334m Up 8% Capital expenditure to be approx. A$1.2 billion A$1,018m Capex: Revenue 11% Free cash flow to be above A$1.0 billion A$1,206m Up 19%
Video: Optus achievements 18
19 Today 1 Optus overview 2 FY11 performance 3 Future opportunities and strategy
20
A number of key trends continue to shape
the Australian Telco landscape
Technology Technology step change driving
bandwidth and faster speeds
Economy
A two tier economy Customer Focus
is emerging Moving from Ear to Eye
Regulation Competitors
Continuing shift towards NBN world Traditional more aggressive.
New entrants building links.21
Technology continues to evolve rapidly
Mobile network bandwidth Fixed network bandwidth
1,000,000 1 Gbit/s
Industry
as at today
100,000 100 Mbit/s
Mobile network 100 / 40Mbps Actual Customer
development Experience# 10,000 10 Mbit/s
100Mbps possible
Downstream Bit Rate
50 / 20Mbps
before 2020 for 93%
1,000 1500 Aust population via
42 / 11Mbps 512
> 15 Mbps NBN. Optus‟ HFC
256 network already
21 / 5Mbps 100
10-12 Mbps provides close to
7.2 / 2.0Mbps
56
8 Mbps 28 33 these speeds in
5 Mbps Latency # (Delay) 14.4 Melbourne, Sydney
3 Mbps 10 9.6
& Brisbane.
1 2.4
HSPA HSPA+ LTE 1980 1990 2000 2010 2020 203022
Mobile customers are connecting over a wide range of ‘smart’ devices...
Tablets are providing greater HD video
Smartphones a key acquisition driver Mobile broadband net adds (‘000) capability
Australia Smartphone Shipments % Total Handset Shipments Australia Tablet Shipments (M)
1.3
1.0
90% 1,356 1,415
85%
0.8
79% 83% 0.7
57% 951
0.3
2010 2011 2012 2013 2014 2008 2009 2010 2010 2011 2012 2013 2014
Source: IDC Source: JP Morgan Source: Goldman Sachs23
...and are shifting their use of the mobile device from ‘ear to eye’
Functions used on mobile phones – 2010 vs 2009
2009
86%
78%
2010
71% 70%
52% *
50% 49%
39%
36%
29% 28%
20%
15% 14%
7%
SMS Photos Internet Games MMS Email GPS Nav.
41%
Source: Nielsen, The Australian Online Consumer Report, February 2011
* „Games is a new category introduced in 201024
Aggressive competition from incumbent operator
Telstra EBITDA margin – six months Mobile net adds („000)
Six months Quarter
44.3% 919
43.1%
37.3%
Telstra
Optus
Dec-09 June-10 Dec-10 445
364
276
175
103
Telstra FY11 “Strategic Opex Investments” announced Sep 2010
Jun-10 Dec-10 Mar-11
DVC/COGS
New
Products
Mobile Service Revenue and YoY growth - six months (A$m)
Labour Spend on 3,250 3,421
3,211
Project New DVC/COGS was ~$40m
$500m at 1H11 +4.7% +7.1% +6.5%
Other ~$50m
Total $1bn Dec-09 Jun-10 Dec-10
Source: Telstra disclosures. Note: Guidance of flattish revenue and high single digit EBITDA decline25
VHA leading on price but limited pull-through on customer growth
Mobile net adds (‘000)
Aggressive “Infinite” plans Six months Quarter
539
Postpaid
Prepaid
395
142 Mobile
144 188
-46
-150 *
Jun-10 Dec-10 Mar-11
• $35-$100 price points (prepaid / postpaid) Mobile Service Revenue and YoY growth - six months (A$m)
• Unlimited calls, TXT and social network access 2,261
2,043 2,142
• 250MB-4GB of data offered N/A +9.3% +10.7%
• Various handsets available
Dec-09 Jun-10 Dec-10
Source: Carrier‟s disclosures, JP Morgan
Source: Vodafone Hutchison Australia Pty Ltd website * Hutchison Whampoa FY10 results announcements (VHA customers at 28 March 2011)26
Competitive low-end postpaid offers fuel growth in postpaid,
but prepaid growth moderates
Market Subscriber Growth - Postpaid (‘000) Market Subscriber Growth – Prepaid (‘000)
+6% +5% +7% +7% +6% +3% 0% +2%
14,697 15,658 16,744 11,244
13,164 13,806 10,127 10,698 10,973 11,002
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
Source: JPMorgan27
Strong take-up for digital services as smartphone penetration increases
Growth in Optus Browsing Revenue (excl WBB)
+62%
FY10 FY1128
Progress on regulatory issues, with some yet to be determined
MOBILE FIXED
Negotiations with Government on Parliament passes key legislation for structural
renewal of existing spectrum licences separation of Telstra and NBN Co governance
Late 2012 confirmed for wireless ACCC‟s draft final determination on ULL /
spectrum auctions (700 MHz, 2.5 GHz) PSTN access pricing
To be determined: To be determined:
• ACCC review of mobile termination rates • ACCC approval for Telstra Structural Separation
• ACCC review of transmission Undertaking and Optus / NBN HFC agreement
pricing for backhaul • ACCC to review NBN Co‟s proposed access pricing
• ACMA “Reconnecting the Customer” Inquiry • ACCC decision pending on Foxtel/
Austar merger29
Australia - two speed economy is emerging and consumer sentiment is soft
Australian GDP (Forecast) Consumer sentiment
4.25% 3.75% 3.75%
2.70%
2010 2011f 2012f 2013f
Interest Rates
“Growth in household consumption and borrowing,
4.25% 4.50% 4.75% 4.75% however, remains relatively subdued, as households
continue to save a higher share of income than was the
case over the past two decades...The volume of retail
Apr-10 May-10 Nov-10 Jun-11 sales was flat in the March quarter...”
RBA Statement on Monetary Policy, May 2011
Source: RBA30
The Australian telco market continues to be driven by mobile growth,
although there are some headwinds
Australian Telco Market (A$m)
• Economy
– Consumer confidence
Mobile +8.5% • Competition
– Aggressive pricing from
other telcos
– Prepaid market softness
Fixed 16,724 -4% 16,020 – New entrants to the
market
CY09 CY10
Source: JP Morgan31
Value shift from fixed to mobile expected to continue
Pre NBN market EBITDA (FY10) Future
Others
VHA Mobile continues to be a key source of growth:
Optus
Strong device take-up
Strong ongoing demand expected for data services
Telstra However, fixed market still very important:
Increased market opportunity with NBN
Emerging value of convergence to customers
NBN expected to have substantial fixed market
Fixed Mobile share in medium to long term
Source: Carrier results, Optus analysis.32
Focus on building mobile market share while exploiting the NBN
FY11-FY12 FY2012+
Drive to leadership Exploit NBN and IP
in Customer Experience to cement leadership
and leverage digital via wireless-led
capabilities to drive convergence
lower cost structure33
In FY12 we will focus on:
MOBILE FIXED
• Break-out in Customer • Build scale in lead-up to NBN
Experience • Relevant and personalised
• Device leadership digital services
• Relevant and personalised • Leverage ICT and Cloud
digital services capability for corporates
• Leverage distribution • Prepare for NBN
• Network investment34
We will continue to invest in growth with a lower cost structure
CROSS
LOWER
FUNCTIONAL
COST-OUT
BUSINESS
SYNERGIES
RE-TOOLING COST
STRUCTURE
FY12 FY1635
Guidance in FY12
FY12 GUIDANCE
Revenue to grow at low single digit level
EBITDA to grow at low single-digit level
Capital expenditure to be at around A$1.2 billion
Free cash flow to be above A$1.0 billionBrand Video – Smart Safe TVC 36
SingTel Investor Day: Optus Overview and Strategy Paul O’Sullivan Chief Executive, Optus 11 July 2011
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