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Telstra announces AU$400m revenue downgrade in wake of NBN corporate plan

With NBN connecting less people next year, Telstra will get AU$300 million less in payments.
Written by Chris Duckett, Contributor

Telstra has informed the market it is expecting AU$400 million less in revenue following the release of NBN's latest corporate plan on Friday.

For fiscal year 2020, Telstra is now expecting revenue in the range of AU$25.3 billion to AU$27.3 billion. At the same time, this has improved the incumbent telco's underlying earnings before interest, tax, depreciation, and amortisation (EBITDA), with the figure adjusted upwards by AU$100 million to a range of AU$7.4 billion to AU$7.9 billion.

NBN said on Friday it has revised down its number of active premises from 7.5 million to 7 million in 2020.

"This is purely a timing issue around deployment and activations, with the Ready to Connect footprint coming later during FY20 than originally forecast in the previous year's plan," NBN said.

"There is no expected material change to the underlying performance of the business and revenue is forecast to recover to expected levels in subsequent years."

However, the shift will see Telstra receive AU$300 million less in payments from NBN, with Telstra lowering the payment range to AU$1.3 billion to AU$1.7 billion.

"Telstra no longer anticipates FY20 being the year of peak nbn headwind and now estimates this will occur in FY21," Telstra said on Monday.

See also: Snake and ladders as Australian broadband realigns towards NBN

Last month, Telstra blamed the NBN as the cause of a drop in profitability, claiming it was responsible for the telco's AU$600 million in negative EBITDA. The company said at the time that the cost it has accrued from the NBN had risen to AU$1.7 billion in total, and that it has only seen half of the impact.

Overall for the company, revenue was down 3.6% to AU$27.8 billion compared to last year, EBITDA shrunk 21.7% to AU$8 billion, and net profit was cut by 40% to AU$2.1 billion.

In recent times, NBN and Telstra have engaged in a round of finger pointing over which company is responsible for money disappearing from which company's balance sheet.

In July, NBN struck out at Telstra's complaints that the connectivity virtual circuit (CVC) charge that NBN puts on bandwidth needs to be scrapped and wholesale prices need to be cut by AU$20.

Telstra CEO Andy Penn said at the time it was unprofitable for retailers to resell the NBN at current prices.

"An industry where wholesale prices result in zero margins for the downstream retail providers is unsustainable," Penn said.

"It will result in higher retail prices, reduced competition and retail providers looking for ways to bypass the NBN altogether -- which is bad for customers and bad for the industry."

NBN CEO Stephen Rue hit back describing the wholesale price debate as "the industry gnashing about NBN Co's pricing model".

Rue said it should be remembered that NBN is serving the entire country, and it is not just about capital costs, but also ongoing costs to keep it running.

"Let's not forget that the sum of all NBN Co payments to Telstra was around AU$2 billion this year," Rue said.

"Our corporate plan points to a continuing payment to Telstra for access to ducts, dark fibre and facilities of AU$1 billion annually from FY21, representing 20% of forecast revenues, and continuing for decades after the build is completed.

"This has an obvious impact on wholesale prices."

On Friday, NBN revealed it would miss previous predictions that it would be cash flow positive in 2022, pushing that threshold back a year to 2023.

This change is due to the company increasing its expected capital expenditure from AU$1.2 billion in 2022 to AU$1.4 billion, thereby sinking its tiny AU$100 million cash flow for 2022 predicted last year.

Instead, NBN said it would be cash flow positive from 2023 with AU$700 million being the first cash flow positive total.

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