Optus outage: Telco risks losing major contracts as customers look elsewhere

Optus has been awarded over half a billion dollars worth of government contracts since 2020, but now runs the risk of losing some of its largest customers.

Optus risks losing some of its most lucrative corporate contracts, with major companies from big banks to state governments considering switching to rivals after the telco’s meltdown that wreaked widespread disruption across the economy.

Since November 2020, Optus has been awarded $547.45m worth of government contracts, according to a website which analyses government contracts from AusTender.

The telco, Australia’s second largest, has faced criticism at all levels, with the federal government and the Australian Communications Media Authority both launching investigations into what caused the outage and how Optus handled the situation and communication with customers.

Businesses big and small have expressed anger at the telco’s handling of the crisis, with Victorian Premier Jacinta Allan branding it “incredibly disappointing” and said the state was reviewing its contract with Optus after the outage shut down Melbourne’s train work and disrupted emergency services, including hospitals.

Other big customers include Commonwealth Bank, ANZ, Westpac, ING and the Australian Tax Office.

Optus’s star recruit, former NSW Premier - now the telco’s executive in charge of managing its enterprise customers - Gladys Berejiklian is now desperately trying to smooth business relationships after some customers revealed that the were in talks with rival telcos within hours of the outage.

“We take great pride in the number of enterprises we serve and we will continue to work hard work directly with each other with each of our customers to go through any issues they may have had,” Ms Berejiklian said in her first public comments following the outage.

“Our teams are working very closely together very well together. And that will continue.”

Since November 2020, Optus has been awarded $547.45m worth of government contracts. Picture by Max Mason-Hubers

Optus’ most lucrative contracts are with the Department of Defence, with a $405m contract for satellites awarded in April last year. The telco was awarded a further $45m for Defence networking services.

The second largest contract for the period was $10.9m to provide internet for the Australian Electoral Commission, $7.49m for a professional services to the AFP and $3.9m for fixed-voice services to the Department of Education.

Its more recent contracts, which began this month, were for the Department of Employment and Workplace relations with a value of $220,00 and Geoscience Australia with a value of $162,000.

Other big customers include the Department of Home Affairs, Metro trains in Melbourne and the South Australian Government.

On Thursday, Victorian Premier Jacinta Allan said that Optus was one of 23 telecommunications providers who had contracts with her government.

“As we saw yesterday, it covers a really diverse range of different industry sectors for both us, but also too for private business and enterprise as well. Many small businesses couldn‘t operate yesterday, because of the service disruption because our customers of Optus,” she said.

“The Department of Government Services that’s responsible for the oversight of these contracts is also going to undertake its own review of both Optus response and where we can see further improvements that can be made.”

Ms Allan said she supported the federal government’s investigation into Optus’ handling of the incident and the idea it should be made to compensate those who suffered a loss as a result of the outage.

“It was a significant loss of trade, a significant business disruption and that needs to be taken into account,” she said.

“We will be undertaking our own review of the processes and the responses that were undertaken yesterday because it was, it was incredibly disappointing.”

Victoria would also conduct its own review of Optus’ handling of the situation and provide support to a national review announced by Communications Minister Michelle Rowland on Thursday morning.

South Australia Premier Peter Malinauskas confirmed amid the outage that his government was already in talks with Optus’ largest rival Telstra and that a switch of providers would be considered.

“We are actively engaging with Telstra as the Deputy Commissioner referred to regarding what we can do to switch over some of the critical services that we want to resolve.”

Westpac business customers impacted by Optus’ national outage were frustrated but “also realistic” and none complained of “existential challenges or threats”, said the head of the bank’s business unit Anthony Miller.

Westpac – which banks about 15 per cent of the nation’s businesses and also counts Optus and its parent company Singtel as clients – is itself an Optus customer and was also unable to take or make calls during the outage.

An ING bank spokeswoman said the situation “wasn’t ideal” but the bank was able to get by on back-up networks.

“Like many Australian businesses we, along with our customers were impacted by yesterday’s outage,” she said.

“We have options when a phone line goes down. For example, we have backup options with other providers which we activate in these situations. While the outage wasn’t ideal for anyone, we noticed that many of our customers were able to access other networks to do their own banking, which minimised disruption.”

A CBA spokesman wouldn’t dive too far into detail, he said it was working with the telco to further understand what had happened.

“Optus has been an important partner for many years. We are working closely with them to better understand the cause of yesterday’s outage,” he said.

But extricating from Optus contracts will not be easy or fast and in some cases not possible at all. While smaller businesses can easily switch telcos, ASX-listed companies, including the big banks, need to be mindful of ensuring they still have multiple providers to mitigate the risk of another potential outage.

Optus CEO Kelly Bayer Rosmarin addresses customers in a video. Source: Supplied.

Most big companies split telco contracts between Telstra and Optus, with either being a primary or secondary provider to ensure a level of operations can continue in a situation like Wednesday‘s shutdown. But when contracts come up for review, if Optus was the primary provider, it risks being bumped down to the less lucrative second tier telco.

Also on Thursday, the embattled telco Optus has posted a sharp drop in half-year earnings.

The company, a subsidiary of Singapore Telecommunications, says earnings before interest and tax tumbled 13.9 per cent to $141m for the half year ended September 30.

“Our customer-centric approach has continued to drive positive engagement,” under-fire Optus CEO Kelly Bayer Rosmarin says in a statement, while noting the nation-wide outage has hurt the company’s image. “We recognise that yesterday’s outage has let down our customers and for that we are truly sorry. We will continue to work even harder to retain our customers’ trust and to deliver great network experience, good value, and continued innovation.”

The telco says operating expenses rose 3.4 per cent to just over $3bn for the six-month period, reflecting higher costs of goods sold and content costs, as well as inflationary pressure on expenses, especially energy costs.

Earnings before interest, tax, depreciation and amortisation declined 3.2 per cent to $1.031bn for the half, while revenue increased 1.4 per cent year on year to $4.018bn, led by growth in its mobile business, offsetting declines in the enterprise fixed business.

“Optus has made continued progress in delivering its strategy, despite challenging market conditions including weak consumer sentiment and inflationary pressures that have resulted in pressure on operating expenses,” Ms Bayer Rosmarin said.

In the first half, Optus says its total mobile customer base grew 167,000, with 108,000 new prepaid mobile customers driven by a strong performance by amaysim.

The total Mobile ARPU (average revenue per user) fell slightly, due mainly to a higher proportion of lower ARPU prepaid plans.

The company said home revenue grew 1.1 per cent, with growth in NBN revenues offsetting a decline in Fixed Wireless Access revenue, due to aggressive discounting in the market.

Originally published as Optus outage: Telco risks losing major contracts as customers look elsewhere