Telstra: Don't expect HFC NBN sales to resume before July

Incumbent rolling in slightly fewer billions this half year

Telstra has no inside information on when nbn™ will end its moratorium on new HFC conections.

CEO Andy Penn made that observation after presenting Telstra's latest half-year results. The most he was prepared to say was that "we would not expect any recommencement … in the current financial year."

He said beyond what nbn™ CEO Bill Morrow has said, "I don't have any more news as to either where nbn™ are at in terms of the underlying root issues, or when they will update the market".

The halt on HFC sales is both a burden and a boom to Telstra: on the one hand, it slows down its sale of new NBN connections, since it can't convert existing HFC customers to retail customers. On the other hand those customers don't add to the costs it pays to nbn™ (access virtual circuits, connectivity virtual circuits, or the one-off payments to nbn™).

The high points of Telstra's performance for the first half of financial year 2017-2018 are as follows:

  • Income up 5.9 per cent to AU$14.5 billion;
  • Profit down 5.8 per cent to $1.7 billion.

Penn attributed some of the profitability decline to the customer migration to the National Broadband Network, but the company also took a hit when it recently wrote down its investment in video distribution platform Ooyala to zero.

Absent that impairment, net profit would have been up 9.5 per cent to $2 billion for the half-year.

Telstra drops nbn™ in it as it wears compo for broadband speed ads


The company reported 454,000 new NBN connections, and 57,000 of those took a bundle of services.

Regarding general customer dissatisfaction with the NBN around the country, Penn said "there is no doubt that the rollout … is having an impact on customer satisfaction across the country.

"The ACCC's recent decision to regulate wholesale service standards will help," he said.

Since the ACCC's intervention, Telstra has expanded its backhaul purchases to a level where Penn claimed customers are getting 80-85 per cent of their plan speed even during peak periods.

That comes at a cost: the higher Connectivity Virtual Circuit (CVC) charges were a big contributor to a total $454 million "incremental negative impact" on Telstra's costs in the half-year.

With NBN service income of $84 million, that meant "a net NBN headwind … of $370 million".

Payments under Telstra's definitive agreement with nbn™, separately accounted for, rose by $612 million.

In the future, Penn said, continuing high NBN wholesale prices will prevent services being affordable to all.

Of the recent cuts to CVC prices, Penn said nbn™ is "taking a step in the right direction", adding that "if we can move to a better wholesale pricing level in the long term, RSPs will able to invest in great product".

Sunny in the mobile business

In the mobile segment Telstra added 235,000 retail customers, of which 130,000 took postpaid handsets, and Telstra's wholesale mobile MVNO customers sold another 118,000.

While mobile service revenue rose 1.2 per cent, ARPU declined by 2.9 per cent.

That decline is partly because Telstra has more BYO customers on its mobile network, and their ARPU is lower compared to customers on handset deals.

Moreover, while the machine-to-machine business is numerically small, Telstra CFO Warwick Bray said "some of the ARPUs in machine-to-machine can be in the single digits".

In spite of adding 158,000 services added in the half year, machine-to-machine revenue fell more than 6 per cent to $73 million.

Penn is hopeful that 5G will get wings after 2019, and said the September 3GPP conference on the Gold Coast will be "pivotal", since the industry must get standards signed off so network and chipset vendors, handset vendors, and network operators can roll out the services.

Investment program

Stop us if you've heard this before, but Telstra said investing in digitisation and an all-IP network is a highlight of its capex program.

Of the $3 billion capex Telstra announced in 2016, Penn said it's spent nearly half on customer experience and productivity.

The digitisation program is "at an early stage", but there are 40 agile development teams in Telstra now, and Penn said there will be 100 by the end of the year.

With outputs like customer service bots, he said, there's been a 30 per cent reduction in call centre volumes.

The carrier's in the throes of moving all of its CRM systems onto one cloud-based platform, letting it get rid of five legacy systems (send flowers to Siebel Systems, someone).

There's also big investments in the company's core optical network (with next generation optical transmission to five capital cities so far, upgraded to provide "five times the capacity"), a new operational support system (OSS) platform, and ongoing SDN/NFV development work.

And while the NBN is costing the carrier money, there will be chances to recoup other costs, with Penn saying when the rollout is complete, Telstra will be able to shutter a number of exchanges (some of which will end up in nbn™'s hands as PoPs), and simplify its topology.

Telstra's results documents are here. ®

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