Telstra to get more 'aggressive' after AU$1.7b half-year profit: Penn

Telstra will increase its 'intensity' heading into the second half of FY18 after reporting EBITDA of AU$5.1 billion and net profit of AU$1.7 billion, with CEO Andy Penn outlining the company's NBN customer improvement strategy.
Written by Corinne Reichert, Contributor

Telstra CEO Andy Penn has said the Australian telecommunications giant will increase its "level of intensity" after reporting earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$5.1 billion for the first half of FY18.

EBITDA was down 2.5 percent from AU$5.2 billion a year ago, which Penn attributed to Telstra competing in a market undergoing significant changes, such as the migration to the National Broadband Network (NBN) and the preparation for 5G.

Net profit was AU$1.7 billion, down from AU$1.8 billion; however, excluding the AU$273 million non-cash impairment announced earlier this month due to a write-down of its United States-based IPTV business Ooyala to the value of zero, net profit was up by 9.5 percent to AU$2 billion.

"We need to do more, and we need to do it faster. We are therefore driving a greater sense of urgency in everything we do," Penn said during the Telstra half-year financial results call.

"We are stepping up how we aggressively compete in the market, particularly leveraging our multi-brand strategy including Telstra, Belong, Boost, and Wholesale. We are absolutely increasing our focus on reducing costs, and while we announced increased targets in August, we will look to do even more."

Penn also outlined Telstra's strategy to improve NBN customer service, including by moving most of its customers onto download speeds of 50Mbps, but also by extending its combined fixed and mobile modem to all home bundle customers.

"On fixed, we are moving to provide customers with an always-connected experience. We have launched the smart modem to more than 85,000 customers through our new high-value plans, and I am pleased to announce that later this month we are extending this to all home internet bundles for new, migrating, or recontracting customers," Penn said.

"The smart modem brings together our fixed and 4G mobile networks in a single device to get new customers activated sooner, and existing customers back online quickly if their fixed service is interrupted. Once plugged in, the smart modem will connect a home or small business to the internet within minutes, over 4G, without having to wait for the fixed service to be installed and switched on, which can take a long time for customers migrating to NBN."

Telstra is also aiming to provide customers with 80 percent minimum NBN speeds during peak periods, above the ACCC guidelines, with the telco currently averaging more than 85 percent already.

The chief executive additionally called NBN's new wholesale pricing, which set up 50/20Mbps as the flagship speed, "a step in the right direction".

"We have responded by upgrading to this plan on our most popular bundles, and I am pleased to announce that we are in the process of bestowing 50/20 speeds to the majority of our NBN customers," he said.

Pointing to Telstra's Get Help call centre solution, Penn said that excluding NBN services, Telstra's Net Promoter Score (NPS) was up by six points. Including NBN, it remained flat.

During the six-month period, Telstra's mobile business brought in AU$5.08 billion, up from AU$5.04 billion a year earlier. Post-paid mobile fell from AU$2.71 billion to bring in AU$2.68 billion in revenue; prepaid fell from AU$502 million to AU$493 million; and mobile broadband dropped from AU$514 million to AU$470 million.

Under mobile, the segments to rise were machine-to-machine, which grew from AU$68 million to AU$73 million, and hardware, which rose from AU$1.07 billion to AU$1.16 billion.

Telstra had 17.6 million retail mobile customers by the end of December, adding 235,000 net retail customers -- 130,000 of which were in post-paid -- with 21,000 added following the launch of Belong in September. Telstra additionally added 118,000 net customers across wholesale mobile.

Telstra's Network Applications and Services (NAS) arm grew by the highest percentage, up by 14.1 percent from AU$1.47 billion to AU$1.677 billion. Within this business, managed network services increased by 7.7 percent, unified communications by 4.3 percent, cloud services by 14.6 percent, industry solutions including NBN commercial works by 22.2 percent, and integrated services by 27 percent, thanks to growth in business and enterprise customers.

Global connectivity revenue also rose to bring in AU$735 million, up from AU$704 million a year prior, due to continued NAS and fixed product growth.

Revenue declined across Telstra's fixed segment, however, dropping by 8.3 percent from AU$3.255 billion down to AU$2.986 billion due to NBN migration and competition. Despite this, Telstra had added 57,000 retail bundle customers during the half year, with Telstra TVs in the market now numbering 1.092 million.

Telstra's NBN customers grew by 454,000 to reach 1.63 million in total.

Data & IP was likewise down in revenue, declining by 5.5 percent from AU$1.376 billion down to AU$1.3 billion, which Telstra said reflects customer growth in IP VPN/MAN, offset by legacy product declines across ISDN, IP WAN, and calling products.

Foxtel revenue was down by 2 percent to AU$1.59 billion.

According to Penn, Telstra's productivity program led to a 7.2 percent reduction across its core fixed assets during the six-month period, "more than offsetting inflation, higher power costs and reinvestment".

Penn gave no further update on the impact of NBN's HFC pause on Telstra's financials, but said Telstra has thus far absorbed AU4870 million to date of the expected overall AU$3 billion EBITDA impact the NBN as a whole will have on the telco.

For the full year, Telstra is expecting to report EDITDA of between AU$10.1 billion and AU$10.6 billion, with capex spend predicted of between AU$4.4 billion and AU$4.8 billion expected for the year -- including spend for the 5G spectrum auction to be held later this year.

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