Telstra chief Andy Penn has flagged the telco is facing a difficult trading period ahead due to the “challenging dynamics” of the rollout of the National Broadband Network and increasing pressure on its margins from competitors.
Penn issued his warning in remarks he will make to a JP Morgan summit in Boston tomorrow when he will also stress that increased competition in the market, and the NBN, have eaten into the company’s profits.
“We continue to experience the ongoing negative NBN impact on underlying earnings,” Penn said.
“The National Broadband Network (NBN) in particular has driven a number of challenging dynamics for the industry that collectively point to a difficult trading period ahead.”
According to Penn, the Australian Government is “essentially re-nationalising the fixed access last mile of infrastructure from Telstra to become the nation’s wholesale provider for fixed broadband, transforming Telstra into a reseller of broadband services.”
And, the Telstra CEO says this is having a “very material impact on the economics of the whole industry and has triggered a step change in the competitive environment”.
“In the last 12 months alone we have moved from three big players in mobile and fixed to a situation today where we face a fourth network operator entrant in mobile (TPG) an increasing number of MVNOs and more than 170 resellers of fixed.”
“We are responding to these dynamics to protect and grow our customer base. We have bestowed unlimited data to almost half our fixed broadband base and we recently launched an unlimited domestic data plan on mobile.
“We are the first to do so above the line in Australia, offering 40Gb of mobile data with uncapped speeds and 1.5Mbps capped speeds thereafter. Learning from the experience here in the US, better to be first than late,” Penn said.
Penn described the current market as a critical time for the global telecommunications industry, and said demand for core products and services has never been greater.
“We are seeing data volumes increase 50% per annum across both fixed and mobile networks and the range of services supported by our networks increase dramatically. Telecommunications is rapidly becoming the backbone of many industries and the dependence on connectivity and the always on society is here to stay.
“On top of this, as an industry we are in a transition to the next generation of technology as we move to software defined networks, network function virtualisation and 5G.
“This is not just about another G for mobility - SDN/NFV and 5G in conjunction with data analytics, AI and the whole world of the internet of things means this technology transition will be more profound than any we have seen before in telecommunications.”
Based on April year to date results and 2H FY18 current expectations, Telstra has reported the current outlook against FY18 guidance is:
• Income expected around the middle of the $27.6 - $29.5 billion range
• EBITDA is expected at the bottom end of the $10.1 - $10.6 billion range
• Net one-off NBN DA receipts less NBN net C2C2 is expected at the mid to upper end of the $1.4 - $1.9 billion range
Penn said Telstra continues to focus on reducing costs and expects FY18 underlying core fixed costs to decline by approximately 7% - with incremental restructuring costs of approximately $300 million in FY18 compared to previous guidance of $200 – $300 million.
Penn said he continues to be optimistic about the long-term future of the industry and for Telstra.
“We continue to see strong demand for our services and increased growth in data volumes as connectivity becomes more important. We have made significant investments which are already delivering benefits and provide us with the platform to support a range of new initiates we will be launching.”
Telstra's share price dipped sharply on the announcement from the telco, falling more than 4% to $3.07 in the first hour of trading on the ASX.
TLS Price at posting:
$3.04 Sentiment: Buy Disclosure: Held
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