Telstra expects profit to be cut in half after full NBN roll out

Telstra expects profit to be cut in half after full NBN roll out

Chairman explains full impact of the National Broadband Network on the telco

Credit: Dreamstime

Telstra chairman John Mullen told shareholders today that the telco's net profit is expected to be cut in half after the NBN is fully rolled out.

Mullen explained that the market is challenging but Telstra has backed itself to win against Optus, Vodafone and TPG, but the market challenges are not the major cause of the telco's share price decline.

"But the absolutely unique challenge we do have is the NBN which, as shareholders would know, is taking Telstra’s place as the wholesale network provider of fixed services in Australia," Mullen said.

"The NBN is the single biggest impact on Telstra’s financials, and the impact is profound.

"The NBN will have reduced Telstra’s net profit after tax by close to a half when fully rolled out. Not a few per cent, half."

"Having been privatised by the government in 1997, the government is now effectively re-nationalising half of the company again," Mullen added.

He explained that what Telstra is losing through this policy is equivalent to a company the size of Qantas, and this resulted in increased competition in mobiles adding to the entry of a fourth player, TPG which is on the verge of merging with Vodafone.

"Our net profit is the principal driver of how much dividend a company can pay, so when a company loses up to half its net profit to such a government decision, the impact on its results, on its dividend, and on its share price is obvious," Mullen added.

Telstra CEO Andy Penn added that Telstra along with many of the telco's selling NBN today, were facing a fixed line market where reseller margins were rapidly falling to 'zero.'

"I do not believe we can simply charge our customers more - that's not the right answer. Nor can we continue to sell NBN making little or no money," he stated. "Something needs to give."

Furthermore Penn said the current arrangements were unsustainable and that consumer prices in Australia for broadband were some of the highest in the world, and will continue to go higher if the wholesale pricing issue isn't addressed. 

"It has to come down, and not by $2, but by more than $20," he said. "I realise the government has invested a lot of money into the NBN ... and the current high prices are set to recover that investment. However, that is the lot of the telco. There is not a market in the world where telcos are increasing their prices at this rate."

As previously reported, Telstra expects revenue for the 2019 financial year to suffer a $300 million hit following NBN Co's corporate plan announced on 31 August.

The publicly-listed telco told shareholders on 6 September that NBN Co Corporate Plan 2019 includes lower than previously estimated premises declared ready for service (RFS) and premises activated for FY19.

Consequently, this will result in a $300 million reduction in revenue, which is now expected to be between $26.2 billion to $28.1 billion.

Telstra closed the 2018 financial year with net profit after tax of $3.5 billion, an 8.9 per cent lower than the previous year - EBITDA was also down for the year by 5.9 per cent to $10.1 billion.

Additional reporting by Julia Talevski

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