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Telstra under extreme pressure at home due to NBN Co increases investment in Asia-Pacific - Part 3
Published Date: 3/9/2016

Telstra has ambitious plans to dominate the e-health market

In mid-August 2015 The Australian Financial Review interviewed Shane Solomon, head of Telstra's 850 employee e-Health Division, which had a turnover of only A$43 million in 2014 and A$78 million for the year ended June 2015, but whose management hopes it can double sales every year for the next few years to reach A$1 billion by 2019. Although that number could include significant sales in markets other than Australia, it still look remarkably ambitious compared to a Frost and Sullivan forecast quoted by the AFR estimating that the local market would only reach A$2.20 billion by 2020. Despite the fact that e-Health is an extremely difficult sector that has never met market expectations, being bedevilled by the personal complications and whimsies of its users, rapidly changing technology and practice, overloaded hospital staff and the critical nature of the doctor/patient relationship, Telstra is investing heavily in this business, having as of August 2015 spent over A$150 million over the previous two years on 16 acquisitions.

In December 2014 Telstra announced it had acquired Australian cloud software developer Cloud9, and its partner company Indian health software developer IdeaObject, with whom Cloud9 had merged in September 2013. Cloud9 offers an acute care health information exchange system called Spine and an integration engine called Synchronicity, as well as IdeaObject's HealthObject hospital system, then deployed in 250 hospitals and clinics in India, Thailand, Malaysia and the UAE. Historically, it seems, Cloud9 was known in the primary care market for the Monet clinical information and practice management system which is being replaced by Cloud9's cloud-based GP software program Clarity.

On March 26, 2015, Telstra announced that it had acquired UK health analytics company Dr Foster, which aims to develop and provide information about healthcare systems throughout the world and support decision making. Independent sources estimated that Telstra had paid up to A$50 million for the company.

In July 2015, Telstra launched its 24 x 7 ReadyCare remote GP consultation service designed for Australians in remote areas, and also for when visiting a surgery is more difficult. The service operating out of Alexandria, a Sydney suburb, is being supported by up to four trained doctors at peak periods, and Telstra has plans, if the system proves successful, to turn it into a standard facility.

On August 25, 2015, Telstra demonstrated the opportunities for its eHealth division in Asia, announcing that it had won two key contracts worth tens of millions of dollars in Thailand and Malaysia that involved installing the company's patient-tracker hospital records, Arcus System, into facilities owned by the Sunway Medical Centre Group, Penang Adventist Hospital Group, Tung Shin Hospital and Khon Kaen University Hospital.

On October 8, 2015, it was announced that Telstra had agreed to acquire 5 year-old EOS Technologies, a 40 person technology development subsidiary of the Silver Chain Group of Perth, whose more than 3,000 staff and volunteer look after more than 83,000 patients using the ComCare community care management system developed by EOS, which has been one of the reason for Telstra's interest in the group.



Telstra building capability in video technology via Ooyala

In mid-August 2014, Telstra increased an earlier 23% stake in Ooyala of Santa Clara, a Silicon Valley start-up specialising in video streaming and analytics, to 98% by paying $270 million. Telstra said that Ooyala, with offices in New York, Sydney, London, Singapore, Guadalajara, Stockholm, Paris, Cologne, Madrid and Tokyo, and whose video platform offers more than 500 international customers including ESPN, The Telegraph, News International, Telefonica, and Yahoo Japan capabilities for content acquisition, monetisation, playback, ad services, programmatic trading and real time analytics, would continue operating as a standalone business under its existing name.

In October 2014 Ooyala announced its intention to acquire Video Plaza of the UK, a specialist in video advertising, mainly focused on Europe and previously funded $12 million by Qualcomm Ventures, Innovacom, Creandum and Northzone. It claims that more than 50% of the broadcasters in Europe are using its services. On June 29, 2015 Ooyala acquired Nativ of the UK, a provider of cloud-based media logistics and workflow software and services whose customers include ITV, Audi, Dolby and the Financial Times, thus extending Ooyala's technology base to video production, post-production, digital content services, broadcast planning and media management for both OTT and on air content.



Telstra's A$697 acquisition of Pacnet key to Asian expansion

Having originally announced its intentions to do so in December 2014, Telstra on April 15, 2015 closed the acquisition for A$856 million (697 million) of Pacnet of Singapore and Hong Kong, described as Asia's biggest private owner of submarine cables. Its 46,420 km network interconnects 29 data centres in 17 cities and Pacnet owns and operates EAC-C2C, Asia's largest submarine cable infrastructure at 36,800 km, with a design capacity of 17.92 to 30.72 Tbit/s to and from each of the landing countries, and EAC Pacific, a 9,620km trans-Pacific cable system that directly connects the U.S. to Japan. The company says its 1,200 employees are spread across 28 offices in 13 countries, including Australia, China (including Hong Kong), Holland, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and the U.S. Telstra has said it will progressively retire the Pacnet brand name for the business.

The acquisition also included Pacnet's Chinese joint venture with China Telecom Pacnet Business Solutions of Beijing, which offers customers IP VPN connectivity services, together with data centres. In April 2014, Pacnet Business Solutions signed a strategic partnership with China Telecom Chongqing to boost data centre and cloud development in the city of Chongqing, whereby China Telecom would establish new PoPs in Pacnet's Chongqing data centre, CQCS1. Pacnet's data centres span key cities in China including Tianjin, Chongqing, Shenzhen, Beijing and Shanghai, and the JV offers services in most Chinese provinces. As noted in Part 1, for its first full six months period as part of Telstra Pacnet contributed A$244 million (under 2%) of the total to the company's revenue during the half-year ended December 2015.

In late January 2016, Telstra's COO for global enterprise, Darrin Webb, said Telstra was already engaged in expanding and reconstructing the Pacnet network and services, including: tighter integration between Pacnet and Telstra cable networks, to be combined into a single network in China, while the three cable networks the telco owns that land in Korea will be linked; the rollout of a 6 Tbit/s backhaul link that will run overland in Taiwan and offer redundancy for traffic between Japan, U.S., Hong Kong and Singapore; unspecified upgrades to parts of its network in Indonesia; and the rollout two new SDN products across the 26 PoPS in its PEN network across the Asia Pacific region, Europe and North America. PEN enables enterprises to identify and dynamically connect their network circuits on-demand with other PEN customers, while the PEN Marketplace portal enables organisations to order virtual network functions on-demand from a range of vendors.



Summary

Telstra's diversification is at a crucial stage with many components of a long term strategy being put in place at considerable cost but with the strategy itself not fully developed. As a result, sceptical investors, inured to the idea of the company having been in contentious and provocative positions for many years, have reacted rather negatively to its increased investment and the stock over the last year is well down against most indices. However, most of its expenditures seem to have been soundly based and provided it can continue to be competitive domestically and not lose share too fast, while growing the newer parts of its business in a disciplined way, the future for the company continues to look bright and the stock should recover.