What: Telco giant Telstra Corporation Ltd (ASX: TLS) has been a hive of activity lately as it puts in motion its Asian business expansion plans. This week it announced it will acquire Hong Kong-based Pacnet, the owner and operator of data centres and the longest sub-sea telecom cable network in the Asia region. It will cost US$697 million.
So What: Telstra stated previously that it expects business from Asia to generate about a third of total revenue by 2020 as it develops a business enterprise service network throughout the region. Its stated goal is become a leading provider of enterprise services to multi-national businesses and large enterprises in Asia.
Pacnet is a leading provider of international connectivity in Asia and has 109 points of presence across 61 cities in Asia. It operates 25 offices in 11 cities, with headquarters in Hong Kong and Singapore.
Now What: Telstra can use this access and regional footprint to work with local telecom companies to offer network application services (NAS). It already has a joint venture with Telkom Indonesia to provide NAS through its telecom networks.
The kicker for Pacnet is that it is the only foreign company that is licensed by the Chinese government to provide virtual private network (VPN) and data centre services in 23 Chinese cities. This is the kind of advantageous and exclusive access that Telstra can build its regional network and infrastructure upon.
Earlier, Telstra acquired a Silicon Valley-based company called Ooyala, which specialises in video streaming technology and platform monetisation. Piece by piece, Telstra is assembling the network businesses and assets it needs quickly, thanks to the multi-billion dollar war chest it has. It will have more cash flow soon as the money from the NBN rollout agreement begins to come in. The company should be well funded over the coming years to acquire the necessary businesses and assets like data centres to meet its goals.
Telstra has a great reputation for a rock-solid dividend, with a current yield of 5.0% fully franked. Now, it looks like the next several years will see substantial business growth. It may take some time for all the new initiatives to generate maximum returns. However, Telstra is definitely a strong long-term investment opportunity. Investors should have it in their portfolio and build up a position as the stock story improves.
