By Simon Bond

The share price of Telstra has been on a gradual decline since the day David Thodey announced his departure as CEO of the business - it's all in the timing they say.

Telstra shares are a significant holding in most portfolios, and they are seen as a stable income producer for yield-oriented investors, but the decline in capital value over the past year and more has many investors becoming increasingly nervous.

So how does a business like Telstra unlock value and reassure its shareholders about its future? The past few years have also seen the value of Telstra's property portfolio scaling new heights, so the question again comes back to how the business unlocks value for its stakeholders.

Considering the developments in Data Centre technology, the build out of the NBN, and the huge increase in "mobile" over the past five years, one can only wonder what the business will look like five years from now.

Back in April 2011, we published a note discussing exactly this strategy, so maybe it's now time for the company to consider the strategy we put forward six years ago. The note is republished below. 

"I am surprised that Telstra has not been in receipt of a strategy to unlock the value in these assets by someone such as Macquarie, or a private equity player.

The exchanges all around Australia could also be used as data centres, as they are all already connected by fibre. Some exchanges may become redundant as technology moves forward and the prime locations of where the exchanges are located would have many a property developer salivating at the prospects of redevelopment.

According to recent Telstra records that I located, there are 1,043 Telstra telephone exchanges in Sydney, 1,095 in Melbourne, 605 in Brisbane, 369 in Perth, 252 in Adelaide and 95 in Hobart.

Many of these exchanges could be converted to cloud-based computing operations and data centres offering hardware and software to access web-based applications. The IP infrastructure used by companies such as Telstra is better suited to cloud services.

By way of illustration as to where some of these exchanges are located, please see below.

Melbourne snapshot:

Brighton 9

South Yarra 15

Sandringham 8

Mount Eliza 5

Kew 7

Hawthorn 8

Sydney snapshot:

Mosman 4

Cremorne 15

Hunters Hill 6

Paddington 11

Waverley 12

Manly 8

Across Australia, there are thousands of other well-positioned Telstra exchanges that may be fit well for future requirements, in fact, the total number that I identified was 6,353. 

Both the Government and Telstra realise that cloud computing is redefining traditional IT. 

The growth in the cloud is still very much underestimated and a recent study by Forrester Research puts more meat on the bone.

When everything runs inside an Internet Browser cloud based email, accounting and customer tracking systems enable companies to reduce complexity and maintenance costs, think Webjet, Real, Wotif, Car, Reckon, RP Data and Seek to name a few. 

In general, cloud computing customers do not own the physical infrastructure, instead avoiding capital expenditure by renting usage from a third-party provider. They consume resource as a service and pay only for resources that they use. 

Many cloud-computing offerings employ the utility computing model, which is analogous to how traditional utility services (such as electricity) are consumed, whereas others bill on a subscription basis. Sharing "perishable and intangible" computing power among multiple tenants can improve utilisation rates, as servers are not unnecessarily left idle (which can reduce costs significantly while increasing the speed of application development). 

A side effect of this approach is that overall computer usage rises dramatically, as customers do not have to engineer for peak load limits. In addition, "increased high-speed bandwidth" makes it possible to receive the same response times from centralised infrastructure at other sites. 

Cloud computing users can avoid capital expenditure (CapEx) on hardware, software, and services when they pay a provider only for what they use. Consumption is usually billed on a utility (resources consumed, like electricity) or subscription (time-based, like a newspaper) basis with little or no upfront cost. Other benefits of this time sharing-style approach are low barriers to entry, shared infrastructure and costs, low management overhead, and immediate access to a broad range of applications. In general, users can terminate the contract at any time (thereby avoiding return on investment risk and uncertainty), and the services are often covered by service level agreements (SLAs) with financial penalties.

According to Nicholas Carr, the strategic importance of information technology is diminishing as it becomes standardised and less expensive. He argues that the cloud computing paradigm shift is similar to the displacement of electricity generators by electricity grids early in the 20th century.

Other factors impacting the scale of any potential cost savings include the efficiency of a company’s data center as compared to the cloud vendor’s, the company's existing operating costs, the level of adoption of cloud computing, and the type of functionality being hosted in the cloud.

In the future, cloud capacity can be rented as required, providing near infinite scalability giving firms the option to outsource either all or part of their IT Infrastructure and will do for modern day business what the electric grid did for the early industrial age when companies no longer had to invest in expensive electric generators and were able to instantly scale their power usage to meet product demand through a simple power line hookup to the local utility.

Until now, the telecom related companies have been absent from cloud computing, however cloud computing offers significant potential for telecom service providers by combining their competitive advantage as network operators with technological innovation. 

Cloud services can increase the value of carrier networks in multiple ways and create new revenue streams. At a minimum, cloud services can significantly increase network traffic and network utilisation as Telecom operators can charge both end users and cloud-based providers for a given level of e-service quality.

Cloud computing lowers barriers to entry, accelerates innovation and intensifies competition and will ultimately lead to massive consolidation as the telecom and networking sectors converge."