Weekly News Wrap: Telstra breaks up, EU takes on Amazon, Pfizer announces vaccine

Monday 16 November 2020

Our pick of the week’s biggest stories affecting Aussie equity markets

IN FOCUS: TELSTRA SPLITS INTO THREE

What’s going on? 

Telstra is undertaking a major restructure, splitting itself into three separate entities:

  • InfraCo Fixed will own the physical infrastructure assets: the ducts, fibre, data centres, subsea cables etc.
  • InfraCo Towers will own the mobile infrastructure like towers.
  • ServeCo(currently a placeholder name) will own the active parts of Telstra’s mobile phone business including its radio access network and spectrum assets that maintain the network’s coverage.

The reason for the restructure is simple: the National Broadband Network (NBN) will likely be sold to a private entity sometime in the future. Some analysts saying as soon as after the next election. Telstra wants to buy it – but there’s a snag.

Last year Federal Communications Minister Paul Fletcher said the NBN cannot be owned by a vertically integrated telco. The split will allow InfraCo to buy the NBN

It’s likely the restructure will be in place by late next year.

What’s the backstory?

In 2010 Telstra was forced to sell its copper and cable broadband networks to the government-owned NBN Co. The 2013 federal election saw the LNP and Labor vie over the best plan; Kevin Rudd promising an NBN made purely from optic fibres, Tony Abbott promising a cost-cut version using the old copper network.

Abbott won, and since then the NBN’s costs have blown out. Ironically, taxpayers have now paid $5billion more than the Rudd version, mainly because it’s expensive to fix outdated technology. It’s also very slow: our download speeds rank Australia 62nd in the world behind Uruguay.

The NBN is yet to make a profit, in February it reported a half-year net loss after tax of $2.8 billion – the latest in a series of multibillion-dollar losses. The latest half-year result was better, but still a $648 million loss.

It’s hoped if Telstra takes it over, the NBN would deliver a better service and become more efficient.

What does it mean going forward?

Analysts and investors reckon the split is a good idea – evidenced by Telstra’s share price jump 3% to $3.08 after confirming its full-year profit forecasts along with announcing the split.

Chief Executive Andy Penn has also flagged a move into the energy sector – selling the power Telstra helps generate to consumers. Health is another area set to get some attention: Telstra Health’s seen a spike in use this year thanks to the pandemic, with many more of us attending virtual GP consultations.


In Brief:

EUROPEAN UNION TAKES ON AMAZON

The European Commission’s accusing Amazon of an antitrust violation. They say “the use of non-public marketplace seller data allows Amazon to avoid the normal risks of retail competition and to leverage its dominance in the market”. 

Amazon disagrees with the allegations saying they will “continue to make every effort to ensure it has an accurate understanding of the facts.”

The Commission is also opening a second antitrust investigation into Amazon to look at whether they’re giving preferential treatment to its own retail offers and marketplace sellers that use its logistics and delivery services – specifically in relation to “Buy Box”.

If found guilty Amazon would be facing a fine equal to 10% of their annual global revenue: $28 billion.


REA GROUP GETS SERIOUS ABOUT INDIA

REA Group, a subsidiary of Newscorp that grew out of realestate.com.au has its sights set on the subcontinent.

REA’s been in India since 2017 with a minor stake in local company Elara Technologies. 

Elara owns:

  • Housing.com servicing the biggest cities
  • PropTiger.com for new developments
  • Makaan.com servicing smaller cities.

After three years, REA’s decided the Indian market is ripe for the picking. REA’s set to take a controlling interest in Elara, which could be between 47.2% and 61.1% depending on how many minority shareholders accept REA’s offer.

It’s part of a larger strategy; REA’s already got a digital presence in Malaysia, Hong Kong, Thailand, China, Singapore and North America.


PFIZER ANNOUNCES VACCINE 

Pfizer is the first vaccine developer to release Phase 3 data with clinical trials showing it’s 90% effective. If all goes well they could be producing up to 600 million doses for the U.S. Following the announcement shares in Pfizer closed up nearly 8%, valuing the stock at $39.20USD apiece.

Pfizer CEO Albert Bourla picked a great time to sell his stock – making $5.6 million as the share price soared as high as 15%. He did it through a scheduled disposal via Rule 10b5-1. Rule 10b5-1 allows insiders of publicly-traded corporations to set up a trading plan for selling stocks they own, and avoid accusations of insider trading.

Moderna has released their Phase 3 results this month, Astra Zeneca’s expected to follow suit by the end of the year.

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