Telstra has announced underwhelming half yearly profit numbers, with profits down 14.4 per cent and revenue down 3.6 per cent, in a sign the company is undergoing a difficult transition to the post-NBN world.
Australia's largest telecommunications company saw its half yearly profit drop from $2.09 billion this time last year to $1.79 billion on revenue that fell from $13.3 billion to $12.8 billion. Its EBITDA of $5.18 billion was at the low end of earlier guidance of "low-to-mid single digit," coming in as a 1.6 per cent decrease overall, and a 2.4 per cent rise based on its guidance criteria.
The results was below expectations of some in the market. In a report at the start of February, Credit Suisse had forecast a half yearly EBITDA increase of 2.5 per cent to $5.4 billion and net profit of $2.005 billion.
The company blamed the implementation of an earlier decisions by the Australian Competition and Consumer Commission to cut the amount telcos can charge for calls and texts to a rival's network, known as Mobile Terminating Access Services (MTAS) as well as charges for ADSL services known as Final Access Determinations for much of the declining numbers.
It said these impacted income and EBITDA by $400 million and $38 million respectively, and that without these hits it had higher total income through double-digit growth in Network Applications and Services (NAS) - which includes cloud computing services - and increased receipts from national broadband network payments.
Investors looking to chief executive Andy Penn and chief financial officer Warwick Bray to give some indication of the progress of the company's capital management strategy review, which will give longer term clarity about the future of Telstra's traditionally generous dividend payments, will have to wait.
Mr Penn said the company was continuing to discuss the matter with shareholders, and was receiving feedback that suggested the strength of the balance sheet was their key concern.
The company announced an interim dividend of 15.5¢ per share fully franked, returning $1.8 billion to shareholders.
The company is in the midst of a fundamental transition in the way it generates revenue as Australia's National Broadband Network moves closer to its 2020 completion date, and any hopes that Mr Penn planned to pull a rabbit out of the hat on results day have failed to emerge.
Its bottom line and dividends are being sustained by generous government payments agreed to facilitate the transition of internet customers off Telstra's networks on to the NBN, but it needs to demonstrate to investors that it has a clear plan in place to thrive primarily as a service provider, rather than an infrastructure provider.
Network problems
Telstra still boasts the country's most comprehensive mobile network, and will continue to invest heavily in it in the post NBN era. However it is still nervously waiting for word from the ACCC on whether it will be forced to open up access to its mobile networks to rival service providers in regional areas where they haven't built their own networks.
Mr Penn said that despite increased competition in the market Telstra had increased the number of customers signing up for its mobile and fixed line broadband services during the half.
In the 12 months to December 2016, traffic over its mobile network increased 39 per cent, whereas traffic on the fixed network including the NBN grew 51 per cent.
However it has been a difficult period for Telstra's mobile network, which lost its long-held reputation for reliability with numerous lengthy outages. Mr Penn said this had hit the company's closely watched Net Promoter Score, which measures customer satisfaction levels.
He said NPS had fallen by 8 per cent from December 2015, largely due to the outages, and said the company was working hard to regain the lost customer confidence.
Overall revenue from Telstra's fixed business declined 4.7 per cent to $3.3 billion and fixed voice revenue was down 9.4 per cent. Fixed data revenue however grew 1.8 per cent to $1.3 billion.
Telstra said NBN connections grew by 292,000 to 792,000 at the end of December with Telstra's market share (excluding satellite) now approximately 51 per cent.
For full coverage of today's earnings, go to the AFR Results Wrap Feb. 16.
