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June 01, 2005

Why would Telstra put its cash-cow on the block?

Sensis logo
We've seen much talk about a potential sell-off by Telstra of its directory business, Sensis. For those not familiar with the Australian scene, Telstra is 50% owned by the Government, which in turn is expected to put that half up for sale in the coming year. These paragraphs in yesterday's Herald-Sun are typical of the media coverage:

"Any spin-offs are a matter for the Telstra board, not the Government alone, and only on a basis that serves the interests of all shareholders. Sensis owns the Yellow Pages, White Pages, CitySearch, The Trading Post classified advertising newspaper and other directories."

"It is the jewel in the Telstra crown because its revenue is growing at double the rate of the telecommunications business. It should report revenue this financial year of about $1.5 billion and earnings before interest, tax and depreciation of $800 million to $850 million".

Sensis is a virtual monopoly business and its profits show that. Telstra has protected its white and yellow pages business with vigor. Its recent management correctly saw the threat posed by search engine marketing like Google's AdWords. They focused on innovating, acquiring classified media assets and creating online advertising offerings such as BidSmart. Google's stunning financial performance shows that the world thinks Search Engine marketing is effective.

To what extent will Google have an impact on a local directory businesses like Sensis? Will the Sensis Yellow Pages Maps have Google Map competition in Australia at some stage soon? Will Sensis remain just as profitable if it loses online? Some in Telstra might be thinking that Sensis is at the peak of its profitability.

Posted by Marius at June 1, 2005 12:25 PM

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