Telstra 2007 Annual Report Download - page 37

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Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2007
• Increase of $321 million in other cost of goods sold amounting to $188 million due to higher volumes of
handset sales and higher average cost per handset mainly as a result of the Next GTM network launch and
the associated marketing campaigns. A $29 million growth in BigPond related costs such as internet
modems, EVDO cards and accessories due to the increasing broadband demand and sales growth in
other areas such as $14 million in mobile phone accessories have also driven the overall increase.
Brightstar payments, which only commenced in the second half of fiscal 2006, contributed to the
increase by $40 million. These payments were made in accordance with our procurement agreement
with them to centrally source wireless devices from global suppliers with a view to achieving cost
savings. Significant costs have been avoided as a result of the Brightstar arrangement, inclusive of the
above payments;
• service fees increased by 9.4% to $349 million in fiscal 2007 led by an $18 million rise in bundling of pay
television services due to growth in bundled FOXTEL†
subscribers and price increases and $7 million of
payments to vendors for content supplied on 3GSM mobile handsets;
• usage commissions increased by 6.4% to $299 million, largely driven by higher commissionable mobile
revenue in fiscal 2007 and increased uptake of non-mobile related products such as BigPond® products;
• growth in dealer performance commissions, mainly attributable to a higher number of new mobile
activations and re-contracts through external dealer channels as a result of increased market campaign
activity and the launch of the Next GTM network. These commission payments are contract payments
based on specific performance targets; and
• our managed services costs grew by 5.2% to $224 million in fiscal 2007, mainly attributed to increased
project management professional service costs by third party suppliers for the support of the growth in
major customer contracts.
The increases were partially offset by a decrease in other goods and services purchased expenses such as
network payments and paper purchases and printing costs.
Our network payments declined by 10.1% million to $1,799 million largely due to:
• a year on year reduction of 5.3 cents per minute in the average mobile terminating rate down from an
average of 18.8 cents per minute in fiscal 2006 which was partially offset by a 12.2% increase in mobile
voice terminating minutes and 30.3% increase in SMS calls terminating on other carrier’s networks. The
main driver for the reduction in the mobile terminating access rate was due to an ACCC final
determination which reduced the billed rate of around 18 cents per minute to 15 cents per minute.
Included as part of this determination was a backdated component for a 6 month period relating to the
prior fiscal year for the majority of customers. The impact of the lower rates year on year amounted to
$262 million including the impact of a $61 million reduction relating to periods prior to 1 July 2006, offset
by the volume impact of $90 million; and
• lower payments made to REACH amounting to $68 million for international capacity and termination
costs due to lower net costs flowing through from REACH, which in turn reduces our share of expenses.
Included in this movement were benefits of $21 million relating to the sale of a Japanese Data Centre
during fiscal 2007; partly offset by:
• our offshore outpayments have grown by $44 million in fiscal 2007 due to higher outbound roaming
revenue, as well as growth in our operations in Europe, USA and Asia.
Paper purchase and printing costs decreased by 8.2% to $135 million, largely due to our divestment of
Australian Administrative Services in August 2006. The renegotiation of our printing contract has also
contributed to the cost reduction.
A decrease in other goods and services purchased of $24 million arose due to the inclusion of a restructuring
provision of $54 million in fiscal 2006, offset by an increase in dealer program incentives driven by increased
volumes and rates and dealer performance commissions due to higher activity.