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Telstra Corporation Limited - Essay Example

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Telstra Corporation Limited

The company has made its IPO (initial public offering) in 1991. Currently, the company is under joint public/private ownership, with the Australian government holding 51.8% of its share as of the mid-2005 (Telstra 1). The privatization of Telstra has begun in the late 1990's by the coalition government. However, full privatization which would mean divesting all the government's shares had been blocked until the 14th of September 2005.
The true value of the company's stock is currently under hot speculation from the different industry players. Experts assert that the company's stock is overvalued as some financial information were revealed to the government, the company's largest stakeholder yet remained concealed to the remaining 1.6 million shareholders. The company had allegedly borrowed US$500 million from its reserves to cover its dividend payout in 2005 and another US$2.5 billion for its dividend obligations in 2006. It was also reported that the company needs a minimum of US$3 billion cash outlay in order to rehabilitate its faulty lines. This investment is necessary as Telstra Limited Corporation had not been making investments to maintain its lines (Haynes 20-21).
This information significantly affected the value of the telecommunication giant as investors become wary of the true performance of the company and its future directions. During the first week of September, the market value of its stocks plunged to its lowest in two years. Stock prices further dipped reaching $4.00.
Risk and Return History of Telstra Corporation Limited
After its IPO in 1997, Telstra Corporation Limited has become a profitable investment in security, giving healthy dividends to its shareholders. It can be noted that the company allocates 70% of its total earnings for the fiscal year to pay its stockholders. Also, the company's dividend rate is pegged at 60-70%. This was further raised during 2003 when the management decided to raise this percentage to 70-80%.
Business Risk of the Telecommunication Industry (including the role of government regulation)
Business risk is defined as "the risks associated with the unique circumstances of a particular company, as they might affect the price of the company's securities (Business Risk 1)."
Like other major industries, the telecommunication sector is significantly affected by almost all the macro and microeconomic variables in the economy. Stock prices are typically dependent on the level of interest rates, earnings, dividends and other information which are present in the securities market. These variables are the major and basic factors affecting the business risks of the telecommunication industry as they are used in the stock valuation techniques employed by individual investors.
However, there is also a significant level of business risk associated with the changes happening inside the telecommunication industry. As the economy is facing rapid technological developments, innovations in the provision of telecommunication ...Show more

Summary

Telstra Corporation Limited is the largest player in the Australian telecommunication and information services industry. The company's holds the largest market share in the country's mobile market (45%) and 41% of the local broadband reach.
The company's wide product line ranges from the provision of basic access services which involves installing, renting, and maintaining connections between customer premises and public switched telephone network to local and long distance telephone call services, mobile telecommunication services, and data and internet services…
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