Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern Assessment


One.Tel Case 

Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern Assessment 

Nature of the Entity’s Business 

One.Tel was launched in Sydney, Australia in May 1995. They were described as a global telecommunications company offering a fully integrated product list including low-cost international and national calls, Internet services, prepaid and post paid calling cards plus GSM mobile phone services. Their strategies as customer-focused and dedicated to providing innovative, quality telecommunication services at reduced prices. Details of total revenue by geographic segment for the year ended 30 June 2000 are as follows: 

Country $M % 

Australia 429.4 64 
UK 144.7 21 
France 15.1 2 
Netherlands 36.6 5 
Hong Kong 39.2 6 
Other 13.2 2 
Total 678.2 

The Industry 

Australia’s telecommunications infrastructure with a fully digitised network is as sophisticated and as modern as any in the world. Land based phone lines penetrate about 96 per cent of all households, with 2 million Internet subscribers and over 7 million Internet users. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent and Vodafone 11 per cent. 
(Source: US Department of State FY2001 Country Commercial Guide) 

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Prior to the deregulation of Australia’s telecommunications industry on 1 July 1997, there were two carriers. There are now 35 carriers who are often former service providers and are generally reliant upon leasing network capacity from Telstra, although some are developing their own switching and network capability. 
The influx of smaller carriers into the telephony market has acted as one of the major developments in producing important competitive results in the deregulated market. These carriers typically 


Note 22 of Financial Statements for year ended 30 June 2000 for One.Tel Limited, ACN 068 193 153, and Controlled Entities, One.Tel web site. provide international and long-distance calls and, more recently, complete telephony services. The growth in revenue does not correspond directly with growth in the number of telecommunication service providers due to greater market competition, reduced prices, and lower revenue per company. 

Telstra, the former monopoly carrier, is the dominant provider of Australia’s land-based telephony service. This network has nearly 10 million connections and an annual growth rate of five per cent. Telstra still dominates the telecommunications environment although its market share has dropped significantly in recent years. 

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Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent, and Vodafone 11 per cent. 


Management 

The Board of One.Tel comprised nine members, including five non-executive directors and four executive directors. Due to the rapid growth of the industry described in the previous section significant managerial experience in the industry was limited. The functions of the board included: 

i. approval of corporate strategy, and financial plans; 
ii. identifying and addressing areas of significant risk facing the company; 
iii. reviewing and monitoring management processes and reporting mechanisms; 
iv. monitoring financial performance; 
v. appointment of the senior management team. 


Statement of Corporate Governance in Financial Statements for the Year Ended 30 June 2000 for One.Tel Limited, ACN 068 193 153, and Controlled Entities; One.Tel web site. 


Financial Statements 

BALANCE SHEETS AT 30 JUNE 2000 

Consolidated Parent Entity 
Note 2000 1999 2000 1999 
$M $M $M $M 
CURRENT ASSETS 
Cash 25 335.7 172.6 164.2 170.8 
Receivables 9 218.4 72.0 104.0 58.9 
Inventories 10 5.1 2.5 4.5 1.8 
Other 11 68.9 49.1 50.8 35.3 
TOTAL CURRENT ASSETS 628.1 296.2 323.5 266.8 
NON CURRENT ASSETS 
Investments 12 – – 26.0 17.1 
Receivables 9 – 2.9 356.7 62.0 
Plant and equipment 14 155.7 41.0 85.9 28.1 
Intangibles 15 559.8 28.0 522.3 – 
Other 11 91.9 157.9 71.1 132.3 
TOTAL NON CURRENT ASSETS 807.4 229.8 1062.0 239.5 
TOTAL ASSETS 1,435.5 526.0 1,385.5 506.3 
CURRENT LIABILITIES 
Accounts payable 16 277.2 73.0 115.5 50.4 
Borrowings 17 92.2 7.2 20.2 7.2 
Provisions 18 5.8 4.7 5.2 4.4 
TOTAL CURRENT LIABILITIES 375.2 84.9 140.9 62.0 
NON CURRENT LIABILITIES 
Accounts payable 16 – – 2.3 1.2 
Borrowings 17 107.3 62.9 80.5 62.9 
Provisions 18 8.2 15.2 8.1 14.6 

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