Telstra adds mobile content and music to online properties in China

Telstra today expanded its presence in China with the acquisition of controlling interests in two of the country’s leading mobile content and online music businesses. The acquisitions accelerate Telstra’s plans to achieve A$1 billion in revenue with strong margins and cash flow from its Chinese media assets by 2013.

In a continuation of its media-comms strategy, Telstra has acquired a 67% interest in both China M and Sharp Point. China M is a leading supplier of consumer mobile content serving 350,000 customers daily, while Sharp Point provides technical services for China Mobile’s rapidly growing central mobile music platform.

Together the businesses enjoy strong commercial and contractual links with the country’s mobile telecoms providers.

The terms of the deal are attractive to all parties. Telstra will fund the acquisitions from existing cash facilities.

The acquisitions put Telstra in a central position in the mobile data value chain in China, where the company is already a market leader in three key online business segments: real estate, automotive and consumer electronics.

“Today we’ve added consumer mobile content and music to Telstra’s online real estate, automotive and digital device businesses in China, expanding our position in the world’s fastest-growing online market,” Telstra’s Chief Executive Officer, Mr Sol Trujillo, said.

“Our success with the Telstra Next G network shows that Telstra knows how to offer customers a compelling mobile data experience. We are now exporting that expertise to China.”

“As I said last August, we expect Telstra’s Chinese online and content businesses to generate A$1 billion of revenues within five years, generating strong returns. Today’s acquisitions will make significant progress towards that aspiration,”

“We also believe that pro forma revenues from China M and Sharp Point for fiscal 2009 will be around A$100m. Both businesses are EBITDA and EBITpositivetoday, and we expect the acquisitions to be earnings-per-share accretive from 2010.”

China is already the world’s largest online market, as well as being the world’s largest mobile phone market. China has more than twice as many mobile subscribers as any other nation - and penetration is only about 50% at this stage.

“Telstra is now well positioned to benefit from China’s predicted near-term economic growth of 6-8 per cent, as well as the expected rapid increase in the penetration of mobile phones and personal computers, and the imminent shift of Chinese consumers from 2G to 3G handsets,” the Group Managing Director of Telstra Media, Mr Justin Milne, said.

Despite the global financial crisis, China is forecast to be the fastest growing large economy in the world, with the International Monetary Fund forecasting growth of 6.7 per cent in 2009 and 8.0 per cent growth in 2010.

China also represents a strong opportunity because about half of the citizens are yet to purchase mobile phones and the penetration of smart phones has barely started. 3G networks are only now being deployed in the country, and will be available later this year.

Since 2006 Telstra has purchased majority interests in SouFun, China’s number one real estate website; Norstar Media, operator of popular Chinese auto and digital device sites Che168.com and IT168.com; and Autohome/PCPop, operator of the country’s leading automotive online sales site Autohome.com.cn and popular digital device site PCPop.com.

By the end of 2008, China had 180 million drivers (up 10.2 per cent year-on-year) and 170 million motor vehicles (up 6.7 per cent). The Chinese population purchased some 617 million square metres of residential real estate in 2008 - equal to the floor space of three million Australian homes.

While Australia has approximately 20 million mobile phones, China had more than 600 million by mid-2007, according to Merrill Lynch. Analysts forecast the Chinese mobile market will continue to grow at double-digit rates for at least the next several years.