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| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 19th November 2006 | Issues besetting the telecommunications industry such as continuing falls in prices of traditional services and increasing convergence of new technologies are affecting all companies in the industry and mobile radio company Team Talk is no exception.
A particular challenge is that its customers are increasing moving away from voice services to computer-based services.
Nevertheless, the fundamental reasons why its customers, which include the emergency services, trucking firms such as Mainfreight and Fonterra’s milk tankers, want mobile radios remain, says founder and managing director David Ware.
They want both complete coverage and reliability, something cellphones still can’t guarantee.
A test of the reliability of Team Talk’s service was provided was provided by the snowstorms which beset the South Island last winter. While electricity, telephone and cell phone services all packed in for weeks for some customers, its mobile radio services continued without a hitch. That was of obvious importance to one group of customers, Transit NZ’s roading contractors who need to keep the roads open.
But its core business is producing stagnant profits at best, although the company does have a track record of beating its own forecasts.
One thing that could change that profile is if the company can use its very comfortable balance sheet to acquire growth operations.
While it has been talking about acquisitions since before listing in May 2004, nothing much eventuated until it bought its only direct competitor in October last year, although rather than a growth business that was more an extension of its existing operations.
Then in July it bought a 35 per cent stake in Araneo, a company providing broadband and high-speed networks to internet service providers. That company was only founded in May 2004 and Team Talk’s investment was so small it didn’t have to disclose what it paid.
Ware told the annual shareholders’ meeting earlier this month that he was doing due diligence on a couple of businesses but gave no indication of their size.
He says the company has a disciplined approach to potential acquisitions. It won’t be going offshore, for example, and it isn’t going to invest in untested technology, he says.
The only insight he will give as to what the company might be looking at is that there are two distinct ways of looking at the business: "It depends which side of the bed I get out of."
The first is that the company knows how to build and operate networks, to win customers and to keep its costs under control.
"The next day I get out of bed and go, no, David, you’ve got it all wrong. Basically Team Talk is a channel into blue collar markets such as transport and security," Ware says.
Because of the nature of its business, providing essential communication services for its customers, it tends to build long-term relationships with them. Team Talk has staff who have dealt with the same customers for 10 years. "If our service stops working, they stop making money; it may even be a matter of life or death."
Providing such essential services tends to build up considerable trust and the company could expand into providing other services for such customers.
But again caution looks likely to prevail. The company has moved into the finance company arena through financing customers’ purchases of mobile radios and it did toy with broadening out into providing finance for other things such as trucks. However, the board decided the company lacked the expertise to assess the risks involved.
Financing radios is relatively safe since customers want them to keep working and therefore have an incentive to pay their bills to avoid being cut off but Team Talk wouldn’t have the same control in other areas of finance, Ware says.
But another option is to stick with what the company has and return the excess capital to shareholders. "My shareholders’ money isn’t burning a hole in my pocket. We don’t feel a desperate urge to rush into something for the sake of it. If we have to give the money back to shareholders, well, that’s not bad," Ware says. | | You can buy a transcript of the interview behind this column ($5) or subscribe to a year’s worth -- 48 interviews ($100) by emailing: info@jennyruth.com | |
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