Amid market pressures and the emergence of the National Broadband Network (NBN), telco Telstra has announced a 28 per cent fall in its half-year net profit.
The $1.2 billion result is down $400 million on the same period last year, dragged lower by diminished revenue (down 1.7 per cent) and a 16.1 per cent hit to earnings.
“The markets have been intensely competitive around mobile and fixed [products] and that has had an impact on industry revenues,” CEO Andy Penn told Trading Day.
Despite enjoying higher than average profit margins, Telstra said it’s been forced to forfeit part of that to support customer growth.
“The encouraging thing for us is that we’ve continued to add very strong customer growth. We’ve had 240,000 net new mobile subscribers, and another nearly 70,000 net new fixed subscribers,” Penn said.
The implementation of its 5G network will be the next big driver of growth Penn said, as customers scramble to get on-board.
“The telecommunications industry is dealing with massive demand for data, massive demand for speeds, massive demand for the number of things that are connected to the network… that’s what 5G will deliver,” he explained.
However, there remain concerns that the greater demands of 5G will weigh on the first generation of handsets equipped to use it, diminishing their functionality and battery life.
The other big factor impacting Telstra’s performance was the NBN.
“Telstra’s circumstances today are very different from what they were before the NBN. We are no longer the national wholesale provider. That part of our business – the revenue and value – is being transferred to the NBN and that is reflected in our income, profit, and dividends,” CEO Andy Penn said in a statement to the ASX.
He has long argued that wholesale NBN prices need to be dropped in order to increase the reseller profit margin and lower the cost to consumers.
“Prices can only go higher because currently the industry basically makes no money from reselling the NBN at that level of wholesale price, so something has to give,” he told Your Money presenter James Daggar-Nickson in December.
While the half-yearly result was largely in line with expectations, it will weigh on shareholders who will receive a combined interim dividend of 8 cents, compared to 11 cents last year.
That will be comprised of a 5 cents per share ordinary dividend plus a 3 cents special dividend.
Watch the full interview with Andy Penn above.