See like an entrepreneur… how will Telstra be like in 2010?

February 14th, 2007

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Today, we heard an interview on Sol Trujillo, the Managing Director of Telstra, on the Eureka Report podcast. In the interview, Sol was asked what will be the main drivers of revenue for Telstra in 2010.

Sol replied, ?By 2010, Telstra wouldn?t any longer be called just a telecom business. It?s going to be a media-comms business, which means our revenue profile [will] change.? He then went on to explain that revenue streams from Telstra’s traditional telephone services (PSTN) will decline, while other revenue streams will gain in prominence. Growth areas include wireless Internet broadband (NextG), mobile phone services, media content (Foxtel) and online and print directory services (Sensis). Furthermore, Telstra is expanding overseas, buying an online real estate business in China, which Sol affirmed that it was ?growing at triple digits? as the Chinese real-estate market is rising exponentially.

This is what we expect to hear. Back in November last year, we said in Is the Telstra T3 offering worth a buy?:

Will Telstra remain just a telecommunication company in the future? This is a very interesting question. If the answer is ?yes?, we would not be keen in investing in Telstra because there are much more lucrative opportunities elsewhere. We suspect the answer will be ?no? because if we were Sol Trujillo, we would have taken the strategic path to transform Telstra to one that is more than a telecommunication company. We believe this strategy is the key to Telstra?s future.

One of the pre-requisite skills of an atypically excellent investor is the possession of entrepreneurial foresight. Entrepreneurs see the future creatively and understand the big picture. If you can see the future through the eyes of an entrepreneur, it will lead you to today?s small businesses that may be on the way to become big businesses of the future. If you invest in such small businesses today, your returns can multiply in terms of hundreds and thousands of percent. Of course, such investments are not without risks. What separates the best investors and the mediocre ones are how they deal with risks. For the excellent investors, they mitigate risks with knowledge, understanding and skill. For the average investors, they mitigate risks with wholesale diversification.

Stock analysts, by definition, are usually not entrepreneurs. The dichotomy between their analysis and entrepreneurs? foresight is illustrated by Sol?s comment in this article, Hurdles, but Trujillo’s Telstra a winner:

Trujillo opened up on the sort of long-term group returns he is aiming at when I pointed out that most of the analysts say that Telstra will generate big future cash flows but not substantial profit rises. “Yeah, well, the analysts here in Australia that have written about Telstra have been absolutely wrong almost across the board,” he says. “Look back at what they said in November 2005 and what has happened since then. So that’s why some people are analysts and why some people are managers and leaders.

We guess many stock analysts will be insulted by Sol?s comments. By insults aside, let us see why analysts are often ?wrong.?

We believe the reason is in the difference between the thinking of analysts and entrepreneurs. Analysts, by definition of their job description, look at businesses through the eyes of the status quo. Yes, they may engage in the forecast of future earnings of a business, but their forecasts are usually made by extrapolating from the status quo or some other derivations from it. Entrepreneurs, on the other hand, look at businesses from the eyes of what can possibly be in the future. As such, what others see as ?impossible? is an opportunity for entrepreneurs to force the camel through the eye of the needle.

Thus, we would not go as far as to say that analysts are ?wrong? as Sol had done. The job of analysts is to base their analysis on what is already solid and ?proven,? which is usually what the eye can see as the current state of affairs. But the job of entrepreneurs is to take risks and turn the current order of things upside down and sweep the status quo aside. With luck, determination and skill, entrepreneurs may succeed. Or they may fail.

As investors, we rather go along with the entrepreneurs and try to understand the risks they take instead of shying away from them by diversifying and diluting our investments.

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