Business Risk Analysis Report for Telstra Corporation Limited

This report offers a comprehensive business risk analysis of Telstra Corporation Limited, examining both internal and external factors influencing its operations within the Australian telecommunications industry. It begins with an executive summary and table of contents, followed by an introduction that highlights the significance of risk analysis in modern business environments. The report then provides an overview of Telstra's nature as an entity, including its products, financial standing, and corporate social responsibility initiatives. It continues with an industry report, outlining the competitive landscape and market share dynamics, followed by an assessment of the legal environment. The core of the analysis involves the application of PEST, Porter's Five Forces, and SWOT analyses to evaluate political, economic, social, and technological factors, competitive forces, and Telstra's strengths, weaknesses, opportunities, and threats. Financial performance is also assessed using key ratios. The report concludes with a discussion on management and governance, offering recommendations based on the findings. References are included to support the analysis.

Running head: BUSINESS RISK ANALYSIS REPORT
Business Risk Analysis Report
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The main aim of this report is to analyze the various business aspects that can cause business
risks in the companies. For this report, Telstra Corporation Limited is taken into consideration.
Various steps of this report show various aspects of the analysis. As a part of the external
environmental analysis, PEST, SWOT and Porter’s Five Forces analysis is taken into
consideration. From the above analysis, it can be seen that various external as well as internal
environmental factors affect the operations of Telstra.

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Table of Contents
Introduction......................................................................................................................................2
Part 1: Nature of Entity....................................................................................................................2
Part 2: Industry Report.....................................................................................................................3
Part 3: Legal Environment...............................................................................................................5
Part 4: Objectives and Business Risks.............................................................................................5
Part 5: External Environmental Analysis........................................................................................6
PEST Analysis.............................................................................................................................7
Porter’s Five Forces Analysis......................................................................................................8
SWOT Analysis.........................................................................................................................10
Part 6: Performance Analysis........................................................................................................12
Part 7: Management and Governance............................................................................................16
Conclusion and Recommendations................................................................................................16
References......................................................................................................................................18

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Introduction
In the twenty-first centuries, development in business organizations is a major topic. It
can be seen that businesses all over the world are growing and developing in a fast pace. In this
situation, it needs to be mentioned that the businesses all over the world are confronting with
different kinds of internal as well as external business environmental factors that are causing
various business risks (Hitt, Ireland and Hoskisson 2012). Thus, it is responsibility of
organizational managers to take into account all these internal as well as external business
environmental factors at the time to develop the risk mitigation strategies of the companies. This
particular process leads to the thorough analysis and evaluation of all the major business risks
factors. The present study takes an honest attempt to analyze and evaluate various risk factors of
the Australian telecommunication industry. Telstra Corporation Limited is considered for this
report. Telstra is the leading telecommunication and technology company of Australia catering
the telecommunication needs of the Australians. There are several steps of this report. This report
takes into account the company analysis of Telstra along with the telecommunication industry
analysis. In order to measure the effects of external as well as internal environmental factors,
three major tools are used; they are PEST analysis, SWOT analysis and Porter’s Five Forces
analysis. In order to measure the financial performance of Telstra, some major ratios are taken
into consideration. These are the major parts of this report.
Part 1: Nature of Entity
Telstra Corporation Limited is one of the major telecommunication companies of
Australia. The company was founded in 1975 and its headquarter is in Melbourne, Australia. The
major products of Telstra are fixed line and mobile telephony; internet and data services;

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network services, Pay TV and others. Telstra operates majorly in Australia, but it has global
presence (telstra.com.au 2017). From the 2016 annual report of Telstra, it can be seen that
Telstra has published well-developed Balance Sheet and Cash Flow Statement. From the 2016
balance sheet of Telstra, it can be seen that the amount of total current assets is higher than the
total current liabilities. This aspect is a good indicator of the strong liquidity position of Telstra.
Apart from this, it can be seen that the total amount of non-current liabilities is more than total
amount of equity. This is an indicator of the firm’s large dependency on term loans instead of
equity (telstra.com.au 2017). From the 2016 cash flow statements of Telstra, it can be seen that
Telstra has some specific financing activities; they are income from borrowings, payments of the
borrowings, repayments of leases, buy-back of shares, purchase of shares, payments of financial
costs and others. Cash flow from investing activities includes payments of PPE and intangible
assets (telstra.com.au 2017). As per the disclosing activities of Telstra, it needs to be mentioned
that the financial reports of Telstra is prepared on the basis of Australian Corporation Act 2001.
Telstra also follows the guiding principles of Australian Accounting Standard Board (AASB)
(telstra.com.au 2017). It needs to be mentioned that Telstra is also known for its Corporate Social
Responsibility (CSR) activities. In Telstra, Community Relation Group of Corporate Relations is
responsible for the management of CSR activities. The CSR activities of Telstra covers wide
areas like the community, environment, workplace and marketplace (telstra.com.au 2017).
Part 2: Industry Report
Australian telecommunication industry is one of the major industries in the country. Due
to increased competition and saturated nature, the growth rate of Australian telecommunication
industry is very low. In the year 2016, the growth rate of the Australian telecommunication
industry is 0.1%. In addition, the total amount of revenue in 2016 was AUS $43 billion. More

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than 2042 businesses operate in the Australian telecommunication industry. In addition, around
50,000 people are employed in the Australian telecommunication industry (ibisworld.com.au
2017).
Figure 1: Market Share of Australian Telecommunication Industry
(Source: ibisworld.com.au 2017)
From the above figure, it can be seen that most of the market share in the Australian
telecommunication industry is for Telstra. Thus, it can be seen that Telstra is dominating the
Australian telecommunication market as it is holding almost 50% market share. However, it has
been forecasted that there will be moderate growth in the Australian telecommunication industry
in the near future. From the above graph, it can be seen that the major players in the Australian
telecommunication industry are Telstra, Optus, Vodafone and others (budde.com.au 2017).

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Part 3: Legal Environment
The 2016 annual report of Telstra includes the basis of predation of the financial reports
of the companies. In this particular section, it is mentioned that the basis of preparation of the
annual reports of Telstra is Australian Corporation Act 2001. Apart from this, Telstra also
follows the principles and guidelines of Australian Accounting Standard Board (AASB). In this
regard, one of the major aspects that need to mentioned is that at the time of the preparation of
financial reports, Telstra complies with the principles of International Financial Reporting
Standards (IFRS). In addition, Telstra provides the interpretation of their financial reprints based
on the principles of International Accounting Standard Board (IASB).
Part 4: Objectives and Business Risks
In the recent years, it has been noticed in Australia that there has been a decreases in the
unemployment rate. As per the latest statistics, it can be noticed that the unemployment rate
decreased from 5.7% in June to 5.6% in July, 2017 (abs.gov.au 2017). This decrease in
unemployment is a positive sign for Australian economy. In this particular situation, Telstra has
an important role to play in the reduction of the unemployment rate of Australia as Telstra has
been employing large number of Australians as a part of their employment strategy
(theguardian.com 2017).

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Figure 2: Inflation rate of Australia
(Source: tradingeconomics.com 2017)
From the above figure, it can be seen that there has been a decrease in inflation in July
2017 from January 2017 that is from 2.1 to 1.9 (rba.gov.au 2017). In this situation, Telstra plays
a crucial part in decreasing the inflation rate. It can be seen that Telstra reduces the price of their
products and as Telstra is the market leader, all the other companies in Australian in the
telecommunication industry reduces their product prices. This total process leads to the reduction
in the rate of inflation in Australia.
Part 5: External Environmental Analysis
The analysis of external environment helps to measure the effects of external
environmental factors on the business operations. Three major tools for the analysis of external
environmental analysis are PEST Analysis, Porter’s Five Force Analysis and SWOT Analysis.
The application of all these three tools for Telstra is shown below:

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PEST Analysis
The factors in PEST analysis is shown below:
Figure 3: Factors in PEST Analysis
(Source: Ho 2014)
Political Factors: Government regulation is a major issue in the telecommunication industry of
Australia as change in the telecommunication regulations can be seen frequently. Thus, Telstra
has to comply with all these issues frequently. Sometime these government regulations affect the
business operation of Telstra. However, in overall basis, the political condition of Australia
stable that supports the business activities of Telstra (Marsh and Miller 2012).
Economical Factors: Some of the major economical factors that affect the business operation of
Telstar are rate of interest, inflation rate and huge amount of taxes. In addition, the worldwide
economic crisis is also affecting the business operations of Telstra. For Telstra, it is expensive
PESTAnalysisPOLITICALECONOMICSOCIALTECHNOLOGICAL

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for them to set towers and resources in the rural areas. There is an increase need for the required
resources for Telstra as they are a growing company. However, increase in the disposal income
of Australians is helping Telstra to maximize their revenues (McLean 2012).
Social Factors: There is a limited growth opportunity for Telstra as it is difficult for the
telecommunication companies to expand in rural areas. Customers are left with very few options
while taking the services of mobile, internet and television packages. However, it can be seen
that different types of telecommunication products are becoming the part of the daily live of
people. This particular aspect leads to the high demand of telecommunication products in
Australia (Board 2012).
Technological Factors: The Australian telecommunication industry largely depends on the
advancements of technologies. It can be seen that the telecommunication industries are using
fiver wires over copper wares in order to provide better services. With the assistance of advanced
technologies, Telstra has become able to provide their customers with more convenient services
and products like voicemail, caller ID and others (Jasa et al. 2012).
Porter’s Five Forces Analysis
The factors in Porter’s Five Forces are shown below:

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Figure 4: Porter’s Five Forces Analysis
(Source: Baum 2013)
Existing Rivalry: The Australian telecommunication industry is growing is a slow rate as a result
of increased competition among the existing firms. Some of the major competitors of Telstra are
Spark New Zealand, Vodafone, Optus and others. Still, in this situation, Telstra has been able to
hold the dominant position in Australian market with effective business strategies (E. Dobbs
2014).
Threat of New Entrants: Even after the deregulation of Australian telecommunication market,
new companies still have to face entry barriers. With the help of advanced technology and
Research & Development projects, Telstra has been able to establish reputation in the market.
Thus, the new companies have to bear large set up costs initially. Thus, it can be said that this
treat is low for Telstra.
ExistingRivalryThreatofNewEntrantsBargainingPowerofBuyersBargainigPowerofSuppliersThreatofSubstitute

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Bargaining Power of Buyers: There is not any product differentiation between the products of
Telstra and other companies. In addition, the switching cost from one seller to another is not
high. All these aspects create pressure on the existing telecommunication companies. Thus, it can
be understood that the buyers of the Australian telecommunication industry have power for
bargaining and thus, this risk is high for Telstra (E. Dobbs 2014).
Bargaining Power of Suppliers: In the telecommunication industry of Australia, Telstra is
considered as the largest service suppliers and network as its control over the large share of the
customer base. It can be seen that Telstra has massive dominance over the telecommunication
market of Australia. In addition, the dominance market of Telstra remains stable in every
situation. Thus, it can be said the risk is low in case of supplier’s power.
Threat of Substitutes: There are not any substitutes of the telecommunication products. It needs
to be mentioned that advanced technology and increased competition have reduced the
profitability margin for Telstra and other telecommunication companies. In addition, decline in
the price range can also be seen. Thus, it can be said that this risk is medium here.
SWOT Analysis
The SWOT analysis of Telstra is done below:
Strengths
 Dominant market position is a major strength of Telstra. Telstra is the largest GSM and
3G UMTS mobile network provider.
 Strategic differentiation is strength of Telstra. Telstra has made a large investment for the
transformation of next generation telecommunication services.
 In the recent years, Telstra has made investments in latest technologies like 4G services,
high quality of video media and others.

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 Telstra has been able to expand their business in the major markets like Telstra
Healthcare, Telstra Software and Telstra Ventures.
Weaknesses
 Major weaknesses of Telstra are operational inefficiency and unsatisfactory customer
service. Occasional glitches regarding service quality and customer services can be seen
in Telstra.
 It can be seen that sometimes, Telstra suffers from latency issues compared to its
competitors like Optus and Vodafone. Sometimes, Telstra takes large time in data
traveling that affects customer services.
 It can be seen that the products and service prices of Telstra is higher than its
competitors. This is a major weakness for Telstra.
Opportunities
 Telstra has been entering into ventures into international markets like Asia-Pacific, China
and others. This aspect is creating massive business opportunities for Telstra.
 Telstra can expand its business operations by entering in different industries with the help
of leveraging their core competencies. This will create business opportunities for Telstra.
 Telstra can avail the opportunity of expanding their businesses by improving their cloud
services in both public and private.
Threats
 Saturated telecommunication market of Australia is limiting the business opportunities of
Telstra. This is a major threat for Telstra.
 The strict regulation of the telecommunication market of Australia is creating threat for
Telstra as the company has to comply with different regulations.
 The adoption of rapidly changing technology is creating threat for the business of Telstra.
Apart from these above discussed factors, some other external factors affect the business
operations of Telstra. The global monetary policy along with the bond yield is affecting the share
prices of Telstra (afr.com 2017). The monetary operation of the Australia banks have been hurt
by complying with the principles and regulations of BASEL III and the banks now have to

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maintain bug cash reserves. This affects the financing activities of Telstra as now; the company
has not been able to get enough term loans from the banks (smh.com.au 2017). These are other
external factors.
Part 6: Performance Analysis
For measuring the financial performance of Telstra, some of the major financial ratios
have considered. It needs to be mentioned that Spark New Zealand Limited is considered as the
major competitor of Telstra. The ratio analysis is shown below:
Profitability Analysis

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From the above table and graphs, it can be seen that the profitability position of Telstra is
better than the position of Spark New Zealand Limited. In case of the gross profit margin of
Telstra, it can be seen that the margin is almost same throughout three years. In case of net profit
margin, increase can be seen in 2016 compared to 2015 that is from 16% to 22%. The same trend
can be seen in case of return on equity, as there is a significant rise in it from 2015 to 2016 that is
from 30% to 36% (telstra.com.au 2017).
Liquidity Analysis

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As per the above table and graphs, it can be seen that the liquidity position of both Telstra
and Spark is almost similar. In case of current ration for Telstra slight increase can be seen in
2016 from 2015 that is from 0.86 to 1.02 (telstra.com.au 2017). The same tread can be seen in
quick ratio as increase can be seen in 2016 from 2015 that is from 0.80 to 0.96. However, in case
of time interest earned ration, it can be seen that Spark have stronger position than Telstra as
massive difference can be seen between this ratio of Telstra and Spark (telstra.com.au 2017).

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Stability Analysis
The above table and graphs show the fact that the stability position of Telstra is inferior
to that of the liquidity position of Spark. From the debt ratio, it can be seen that Telstra is more
dependent on the outside debts for capital as the debts ration for three years are higher than 0.5.
This fact can also been seen in debt to equity ratio more capital is raised through term loans than
equity shares. The same fact can also been seen in case of the equity ratio. Thus, it can be seen

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that more dependency of debt capital raises the interest expenses along with financial risks of
Telstra (telstra.com.au 2017).
Part 7: Management and Governance
In Telstra, the external auditors of the companies are responsible for internal control that
includes auditing activities and financial reporting system. The internal auditors of Telstra are
responsible for risk management, assurance and governance (telstra.com.au 2017). There is a
relation between the organizational valued of Telstra with its code of conducts. Some of the
major ethical standards of Telstra are to show care, better together, to trust each other to deliver,
to make the complex situation simple and to find the courage. Every organizational members of
Telstra are required to comply with all these ethical standards. The ethical standards of Telstra
come from the combination of the company’s Ethical Behavior Framework with the
organizational values (telstra.com.au). Telstra has undertaken certain processes for the
communication among all the organizational members. First, face-to-face communication is the
most common communication channel in Telstra. Many meetings and conferences take place in
Telstra for a daily basis. Second, written communication is another channel for communication
Telstra. Apart from this, other communication channel in Telstra are mobile communication,
media communication, electronic communication and others.
Conclusion and Recommendations
The main objective of this report is to analyze the various aspects of the business
operations of Telstra. From the analysis, it can be seen that Telstra has acquired almost 50%
market share of Australian telecommunication industry. The analysis shows that Telstra follows
the principles and standards of IASB, AASB, IFRA and Australian Corporation Act 2001 for the

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preparation of the financial statements of their company. As per the PEST analysis, it can be
observed that Telstra has to comply with different governmental regulations and legislatives at
the time of their business operations. In addition, the world economic downturn has been
affective the operations of Telstra. From the analysis of Porter’s Five Forces, it can be seen that
due to be the market leader in the communication industry, Telstra do not have to face the risk of
new entrants and bargaining power of suppliers. However, the bargaining power of customers
remains high. The SWOT analysis states the fact that due to the increase in governmental
regulations, Telstra may have to face threats. However, the large markets share is the major
strength of the company. Based on the above discussion, some recommendations are provided
below:
 The earlier discussion states the fact that the Australian telecommunication industry
is full competition. Thus, in order to get the required competitive edge, it is
recommended that Telstra should introduce more unique plans and services so that
they can attract the attention of more customers.
 The above discussion also shoes the fact that Telstra has higher price structure when
compared to its competitors. Thus, it is recommended to Telstra that Telstra needs to
reconsider their price strategy so that they can lower the price of their products.
 It is recommended to Telstra that the company needs to make expansion strategy so
that they can make their presence more stronger all over the world.

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