A Fox on both their houses? It’s hard to tell

Illustration: Rocco Fazzari.TELSTRA’S David Thodey tantalised investors with passing reference to a few potential areas for growth but was frustratingly short on new detail. He made passing reference to Telstra being the preferred tenderer for a massive (multibillion-dollar) Australian defence communications contract but gave no detail on the time frame and what contribution it would make to revenue or profit.
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This is clearly a positive, but without any numbers, just how positive is impossible to tell.

But in the four-hour investor briefing from Telstra yesterday, the most interesting titbit was talk about growing the pay TV operator Foxtel’s penetration from 30 per cent to 50 per cent.

Given that Telstra owns 50 per cent of Foxtel, such a customer grab is also an important piece of news. Again Thodey refused to offer much detail on how this could be achieved, other than by offering what is known in the business as a triple-play offer – bundling the pay TV service with landline and broadband.

It sounds like Telstra was reluctant to steal the thunder from Foxtel management, which clearly has big plans it does not want to unveil until the ink is dry on the change to Foxtel’s ownership.

This is now imminent, given that shareholders in James Packer’s Consolidated Media (which owns 25 per cent of Foxtel) yesterday voted to sell the company to Rupert Murdoch’s News Corp.

Foxtel will now be held 50 per cent by News and Telstra.

Thodey said the triple-play plan was a copy of the strategy employed by Murdoch’s BSkyB in the UK. Foxtel subscribers can already get the service through Telstra’s T-Box set-top device.

The idea is clearly to enrich the pay television content offer, the success of which has long been constrained by the government’s anti-siphoning provisions that restrict the provision of popular exclusive sport.

Thodey said Foxtel had always been free to become a Telstra re-seller. Until now it has chosen to stay out of the market because it says the numbers did not stack up.

It’s not clear why it was not a reasonable commercial proposition, other than that Telstra’s terms were not favourable enough to entice Murdoch into the business.

But Foxtel has now decided to revisit this idea. This will be made all the easier in an NBN world, and Foxtel already has customer relationships and billing systems.

Clearly, the relationship between the two owners has been changing. Thodey said the partnership was better now than it had ever been.

The closer ties between Telstra and Foxtel are in keeping with Thodey’s statements that media content is one of the telco’s growth engines.

At least, in part, it’s another plank in the Telstra strategy to stem the leakage of customers from its local loop PSTN network.Man of steel’s iron will

IT’S hard to get a fix on the takeover game between the Posco-led consortium Steelmakers Australia and its target, the steel maker and iron ore producer Arrium (formerly OneSteel.)

At first blush it looks as if Steelmakers has called Arrium’s bluff.

Arrium rejected Steelmakers’ first offer – a response that was understandable enough.

As is usually the case in these situations, the offer was non-binding, its price was underwhelming and it was full of conditions – the largest of which was access to Arrium’s books.

Steelmakers came back late to the table late on Tuesday and increased its offer from 75¢ to 88¢ a share.

The Arrium response was as short as it was rapid. The new offer still did not come close, and it wasn’t enough to deserve any due diligence.

Steelmakers reckons it is now sick of bidding against itself, and has walked away.

It could always come back if Arrium changed its mind and allowed due diligence, but that would be hard for Arrium, given its strident rejection.

Arrium chairman Peter Smedley has form in fending off unwanted suitors, but with outcomes that are debatable.

After nine months of defending Spotless from a bid from Pacific Equity Partners, the ultimate price was not much of an improvement.

When there is only one bidder in the room, the object of the exercise is to keep them on the hook or find another contender and create an auction. There is no sign of that.

Despite its steel and mining consumable business, the real value in Arrium lies in its iron ore mines – some of which are in the development and which will reach target production levels next year.

Steelmakers pushed the line that it would inject some of its innovative know-how into the Arrium’s steel business and potentially make it more viable, but most analysts saw Steelmakers’ agenda as getting its hands on iron ore.

Whether Arrium’s stock is worth more than 88¢ a share depends on what happens to the iron ore price – and industry experts have differing views on this.

If it remains around $US110 a tonne, Smedley may have been smarter to engage with Steelmakers and potentially push the offer up a bit.

The author has shares in Telstra.

This story Administrator ready to work first appeared on Nanjing Night Net.