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well Telstra CEO Andy Penn wants the government to rethink its position on the NBN and its pricing or he warns the major telcos will not make enough return on capital and customers will lose out despite margin pressure investors are taking a new look at Telstra as our super late low interest rates push savers out of deposits I asked and upend first what he made of his share price still way off the highs of nearly 670 in 2015 but this year shares are up 39 percent one of the most significant |
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dynamics affecting Telstra is the rollout of the NBN and of course as you aware and I've sort of shared with the market that really means that about 1/3 to 1/2 of our profit disappears to the NBN over the period of the role and that happens progressively and we're now about more than just over halfway through that rollout and so that's had a significant impact on the overall company economics and therefore understandably including cuts in dividends yeah well understandably would obviously impact the overall share price and end dividends and those sorts of things what I would say in the last year since we announced their strategy which we call T 22 that's going very well we're well
progressed in relation to 5g you're running ahead of your t 22 plan I think you're 12 months into to the three-year cost-cutting plan now in late May you brought forward reconstruction announcements that was a 500 million dollar of impairment on your legacy assets and rise in restructuring costs from six to eight hundred million dollars now just to be clear Andy that is is not an overall increase in costs we're talking about this this is just about timing yeah this is about saying we think we can bring some things forward that we were otherwise contemplating that's going to put us in a much stronger position to deliver on what we've previously committed so your big cost-cutting program has now
been front ended in the first twelve months like I guess the obvious question is will you accelerate it will you actually go further now well we're obviously coming up to results in August so I don't want to preempt anything that I'm going to there but as I previously said you know this gives us further confidence we will deliver against our cost our program rather than necessarily change our cost our program those that are critical of Telstra are really focusing on your strategy and wondering if it is anything more than just a giant cost-cutting exercise where is the growth going to come from this isn't about cost-cutting in fact the more material part of our program is about investing in the capabilities for the future so one thing we've done is we've radically simplified all of our products we've got rid of things like locking locking contracts access data charges all sorts of other charges to simplify the experience for our customers we produce from 1,800 to 20 products we've launched a new loyalty program we've launched new enterprise products let's talk 5g and and your blue sky why should investors believe that you're going to be able to take your first mover advantage and some of the other developments recently like the political situation with with Huawei the a triple C's decision blocking the the the Vodafone TPG merger and convert that to delivering Telstra the edge 5g is the first telecommunication network that is specifically designed for the world of the Internet of Things so connecting things that are not telephones and that's where we see incredible opportunities within the enterprise segment because there's big industry companies you know such as in mining and resources and manufacturing as they look to automate their businesses we're looking at a world where we're going to see sensors in everything and everything being connected and that creates incredible opportunity for growth things like applications and services IOT applications which support automation in mining as an example if you want to have a remote mine and you want that to be as autonomous as possible then you need to connect all of the aspects of the mind whether it's diggers or conveyors or trucks and that all happens over a telecommunications network logistics is another area where we've got where we're connecting all of Lyn foxes trucks around the country that's providing information to them to help improve the operational efficiency of that we've got major contract we probably connect some when you order 70 to 80% of cars that are connecting it so coming back to the NBN Telstra and a dealer a lot of other telcos are getting squeezed by the NBN you've been quite vocal about this calling for a reduction in NBN's wholesale pricing you're gonna keep this up now you've got a new communications minister in Paul Fletcher we need a regulator in a policy framework for telecommunications that makes that is technology agnostic in other words we don't want to create a bias for operators to bias one technology over another we want to give the customer the best technology now unfortunately because of warehouse our broadband prices have gone it means it's basically all operators are losing money reselling the NBN and of course therefore some and they're actively you know they've said as much publicly are looking at 5g to bypass Symbian and I think that's not necessarily a good thing when it doesn't deliver the right technology for the
customers so unless we get the pricing structure right we're going to create this unnatural dynamic in the market which biases technology for reasons other than what's the best technology for the customer but if I could just push you there a little bit Paul Fletcher seems to have poured cold water on the idea that there'll be any changes to NBN's wholesale pricing what you're saying is that if there is no change from the government that that there will be a greater move by players to do more outside of the NBN yeah well obviously it's not for me to speak for on behalf of the minister but my my point is only just to feed into the into the debate that we've got to try and create a policy and a regulatory framework that is technology agnostic and doesn't influence one technology over another and I am
saying that I think if wholesale pricing structures don't change that's what's going to happen you know unless the whole ecosystem is viable then no one part of it can be viable either and so candidly my point is is that unless the pricing structure is change and operators can actually make a return on capital which shareholders are prepared to invest in then NBN is worthless anything that quite major outage recently now Telstra's I understand it has blamed it on on a surge of traffic this affected F bus and certainly the the retail Lobby group was talking about small businesses being affected to the tune of of millions of dollars well the first thing I'd respond by is always apologizing to our customers for the impact that any network interruption has on them the thing today is virtually everything that can be connected is connected and so therefore if there's any interruption in any network in anywhere even for the slightest second it obviously has an impact and the reality is unfortunately things do happen are we likely to get this sort of problem again because I mean it's impacting them the payment system was pretty serious yeah absolutely and of course after every single single incident we do a post implementation post incident review and try and see what we can learn from that to improve
resiliency going for surging traffic can occur when one limb of a network is cut and then of course you redirect traffic through redundancy and of course that does create overflows of traffic and stuff but look you know from a customer's point of view don't care about all that stuff what they care about is that there is a minimal impact on them and to the extent there is an impact we can recover as quickly as possible and that's our focus getting back to your investors and I appreciate we are bumping up against the blackout period do you think the competitive landscape is getting any easier for Telstra now look it's a very competitive and dynamic market I mean we all think of the big operators but the arthas which is our sort of average pricing has been coming down in the industry by 2 to 3 percent consistently over the last three to four years you've had more people coming in to the market so competition is alive and well the thing that I would say though that we've got to pay close attention to is that whilst on the one hand lower prices is good for customers we mustn't forget that telecommunication requires an incredible amount of capital investment so again if we go back to the regulatory and policy framework it's got to be a framework which is pro investment that when we're looking at these things it's important not only to take into account price from a consumer perspective but it's also Network quality because if return on invested capital is not sufficient and indeed return
on investing capital is now around 7% across the industry which is lower than the weighted capital of all of the operators and you're still committed to having it at 10% an air aim is to get it to 10% but the reality is we can't provide an attractive return for investors if we can do that some analysts are now looking more favorably at Telstra one of the reasons is that there's a belief that they this could be the bottom of the cycle for dividends would that be fair well I won't comment as you as you rightly pointed out we're rapidly coming into results and I've got to be careful that I don't preempt any of the things that we need to report at that time but what I would say suffice to say is that you know I mean very pleased with the last 12 months since we announced t 22 we're on a good track in terms of many of the initiatives that we're putting in place we're leading the market on 5g when i leading locally we're leading globally we we've moved ahead on our productivity programs you say we've brought some things forward and I'm very excited about the future notwithstanding we still have probably another two to three years of economic headwinds to work through as the NBN continues to roll out
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