Telstra 2008 Annual Report Download - page 29

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Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2008
• our market based management focus which has enabled us to apply a more targeted approach in handset subsidies
based on each market segment specific features;
• an increased focus on our mobile repayment offering as opposed to the subsidy scheme; and
• the increase in the volumes of 3GSM prepaid handsets has also impacted the mix.
Total network payments costs decreased by 0.1% to $1,797 million. Our domestic network outpayments fell 8.5% to $725 million
mainly as a result of a reduction of 3 cents to 9 cents in the Mobile Terminating Access (MTA) rate. During fiscal 2007 the MTA rate
was 15 cents and 12 cents for the first and second half respectively. The reduction in the MTA rate was partially offset by a 13.0%
increase in mobile terminating minutes of use originating from both fixed and mobile and a 20.4% increase in the number of
terminating SMSs. The prior year figure was also abnormally low due to a $61 million backdated adjustment for mobile
terminating rates as determined by the ACCC. Altogether, the net impact on the fiscal 2008 domestic network outpayments was
a cost reduction of $60 million. Payments made to REACH for international capacity and termination costs increased by $51
million, partially impacted by a one off benefit that was passed through to us in fiscal 2007 from REACH.
Our increased sales volumes in a wide range of products and services categories have had a direct impact on goods and services
purchased, and in particular cost of goods sold - other; including:
• handset costs within cost of goods sold - other increased by 10.9% to $799 million mainly as a result of a 23.6% increase
in volumes sold driven by the success of our Next G™ offering and the migration activity generated by the closure of our
CDMA network. This volume increase was partially offset by a lower average cost per handset as explained above;
• cost of goods sold - other was also impacted by additional BigPond® internet hardware and installation costs such as
internet modems, HSDPA cards and digital and IT accessories due to ongoing broadband growth. Also in the Business
segment, a 45.0% increase in Enhanced CPE revenue contributed to the year on year cost of goods sold growth; and
• a 23.8% revenue growth in Pay TV bundling was the main contributor to the 28.4% increase in service fees to $448 million.
Our usage commission costs decreased by 5.4% to $283 million, largely driven by customers belonging to an external agent that
are no longer part of our commissionable mobile base and a decrease in the fixed telephony usage commission costs which is
consistent with the revenue trend in this product category.
Managed services costs declined by 6.3% to $210 million mainly attributed to a decrease in project management professional
services costs. Certain services are no longer provided by us to our customers after the related equipment was sold.
Other expenses
• IT transformation continues to drive expense growth in service contracts which are up 7.4%
• Bad and doubtful debts expense grew 29.8% mainly from the mobile and Sensis portfolios
• Lower impairment costs year on year due to $110 million Trading Post~ masthead impairment in fiscal 2007
Other expenses
Year ended 30 June
2008 2007 Change 2008/2007
$m $m $m (% change)
Property, motor vehicle and IT rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 592 17 2.9%
Net foreign currency conversion gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (7) (6) 85.7%
Service contracts and other agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,339 2,177 162 7.4%
Promotion and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457 422 35 8.3%
General and administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,028 949 79 8.3%
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 402 63 15.7%
Impairment and diminution expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 389 (28) (7.2%)
Total other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,246 4,924 322 6.5%