Time for the Yellow Pages to walk the gangplank

by | Mar 24, 2012 | Business

Telstra might have fetched $17 billion-plus a few years ago. They would jump at a third of that now.

Sensis, the division of Telstra in charge of phone books, prints 100 different kinds in Australia: about 15 million copies of Yellow Pages and 10 million White Pages. Photo: Craig Sillitoe

THE Yellow Pages is very useful, you know. It’s not just a handy prop to dig out of the broom cupboard when the leg of your couch packs it in. There is a far greater imperative for the continued existence of the big, fat paper directory.

A phone book is indispensable when your house gets burgled, the thief takes your computer and you can’t Google a locksmith. Assuming the interloper has made off with your smartphone and you still have a fixed line, the time has arrived for the grand opening, the unsheathing of the venerable yellow artefact from its plastic wrapping.

The White and Yellow pages have been a superlative cash cow for Telstra, churning out 60 per cent profit margins on a billion dollars in sales, year in year out. They are also a monumental waste of trees.

Sensis, the division of Telstra in charge of phone books, prints 100 different kinds in Australia: about 15 million copies of Yellow Pages and 10 million White Pages. It delivers to 8 million homes and 2 million businesses at an annual production cost of roughly $150 million.

The cost is split 50-50 between print and paper. These are pre-carbon tax numbers, mind you.

The carbon footprint is immense. Besides ink and electricity, Sensis uses 60,000 tonnes of paper. At $1100 a tonne, that’s $65 million a year in paper alone. Revenue to printer PMP is in the vicinity of $60 million, too. Its seven B-doubles leave the plant every day, trucking directories all over the country.

Entrenched interests will fight valiantly for the survival of the great yellow and white doorstops and, yes, there is a 1800 opt-out number. Though the latest results from Sensis would suggest that the time is nigh for an opt-in number.

Although 70 per cent of these phone books are recycled by Visy, which makes a $5 million or $10 million profit in the process, the paper waste is hardly justified either in economic or environmental terms.

Small business advertisers are flocking online. Sensis revenues for the December half fell 24 per cent to $528 million, but earnings before interest and tax fell twice that, down 69 per cent to $71 million.

We are now right at the steepest part of this industry’s structural decline.

A couple of weeks ago, Sensis boss John Akhurst announced he was leaving after 15 years. In 2006, the Telstra veteran had taken a proposal to the board to sell Sensis. The business was raking in $1.2 billion in EBITDA at the time (now $260 million and falling).

Had they spun this off in a sharemarket float – the institutions would have lapped it up just like Myer – and received the 14 times EBITDA multiple that Telecom New Zealand had for the sale of its directories business, it might have fetched $17 billion-plus.

They would jump at a third of that now, having sorely underestimated Google. Although at the time, understandably, the board was loath to part with a billion-dollar cash generator.

Two years before the Akhurst proposal, in 2004, Telstra had paid John MacBain a handsome $636 million for Trading Post. Now the words trading post carry the ring of a foregone era.

TALKING of opportunities, it was wonderful to see David Jones sally forth with an internet strategy this week. Unlike Telstra, the department stores don’t have the luxury of other divisions, such as a booming mobile phone business, to compensate for their sagging sales.

Announcing its ”Omni Channel Retailer (OCR) model” – which might have been more accurately labelled the BLN (Better Late than Never) model, DJs is finally coming to grips with the ugly reality that the old physical distribution strategies just don’t cut it any more.

In the US, department stores average 7-10 per cent of their sales online. It might be cannibalising your own offering but, just like newspapers with their free online news, they have little choice.

The press has been a good deal more proactive than the retailers and now boasts larger audiences than ever, though they are yet to monetise them.

At least they have kept and even expanded on their rusted-on customer base. In 1964, Fletcher Jones used to sell every bloke in town a suit. Fletcher Jones went belly-up a few months ago. Its rusted-on customer base had died out.

David Jones and Myer face the spectre of relentlessly falling sales and an ageing customer base while they sink costs on their internet offerings. For Myer, the going may be tougher. Management may soon have to contemplate canning the dividend.

The cunning private equity mob that floated Myer ripped out its flagship properties and replaced the cash with debt.

DJs has a buffer – it owns its main stores – and Myer shareholders had better hope the privateers didn’t load their store lease costs too heavily at the back end (a la the DJs’ credit card deal).

And sometimes the big stores could do with more staff rather than less. Otherwise shoppers might as well go online.


Michael West

Michael West

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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