Telstra feels financial pain from NBN rollout, competitive pressure

Releases market update

Telstra CEO Andy Penn has warned of a “difficult trading period ahead” for Telstra, thanks to the “challenging dynamics” created by the roll out of the National Broadband Network.

Telstra has previously warned that it expected a negative ongoing effect on EBITDA from the NBN of around $3 billion.

In remarks prepared for the 46th Annual JP Morgan Global Technology, Media and Communications Conference, Penn said 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.

“This is having a very material impact on the economics of the whole industry and has triggered a step change in the competitive environment,” Penn said.

“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.”

Telstra revealed it is expecting mobile EBITDA to drop thanks to a 3.6 per cent decline in postpaid handheld ARPU (excluding handset repayments) to $65.35 compared to Q3 last year.

“As a result, we now expect FY18 EBITDA to be at the bottom end of FY18 guidance and the challenging trading conditions in FY18 to continue in FY19, including pressure on mobile and fixed ARPUs and the accelerating impact of the NBN,” Penn said.

Penn said FY18 income is now expected around the middle of the $27.6-$29.5 billion range, with EBITDA expected at the bottom end of the $10.1-$10.6 billion range.

The telco expects NBN-related payments related to the transition to the new network at the mid to upper end of the $1.4-$1.9 billion range, and capex the mid to upper end of $4.4-$4.8 billion range.

The Telstra CEO said that Telstra expects FY18 underlying core fixed costs to decline by around 7 per cent.

“We expect to incur incremental restructuring costs of approximately $300 million in FY18 versus our previous guidance of $200 – $300 million,” Penn said.

Penn said he remains “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.”