Telstra softens up mobile customers for inflation sting

Telstra customers will have more flexibility to change their contracts to offset rising prices, according to chief executive Andy Penn.

Telstra, led by Andy Penn, has reported a profit hit for the six months to December, blaming an ‘expected decline in significant one-offs’ including a tapering in payments from NBN Co.

Telstra customers will have more flexibility to change their contracts to offset rising prices because the telco giant has cut costs and streamlined the number of plans offered, according to chief executive Andy Penn.

Speaking to The Australian on Thursday, Mr Penn did not rule out price rises across the board but said his T22 program – which ended this year after cutting $2.7bn in costs – had made it easier for customers to change plans depending on circumstances.

Telstra reported $3.5bn in earnings before interest, tax and depreciation for the six months to December 31 – down nearly 15 per cent on the previous period.

Net profit fell 34 per cent to $700m, which the company said was caused by a slide in payments from the NBN.

Mr Penn – who along with Telstra chairman John Mullen has faced questions over succession planning given their extended tenures – said he had no intention of moving on. But Telstra had a team with ample talent in the event he was “knocked over by the proverbial bus”, he said.

“I am incredibly proud to work with a very capable team. And your job as CEO, regardless of your own plans, is to make sure that there is always succession within the team,” he said.

“And I’m lucky to work with the most talented management team in the country.

“There’s plenty of succession opportunities in there. In the meantime, I’m very happy doing what I’m doing.”

Telstra’s shares fell more than 4 per cent to close at $3.90.

Mr Penn said Telstra was “experiencing the same dynamic that everyone else is” when it came to inflation, with wage inflation pressures particularly acute.

“The inflationary pressures are real, and I don’t think we’ve felt the full weight of those significantly to date,” Mr Penn said.

“The economic data and all the experts tend to point to it, and we will obviously do our best to try to make sure that we mitigate the impact on shareholders and also on customers.

“We’ve made significant changes to try and simplify our overall approach to pricing for customers so that if we do need to make price changes, we’ll do it in a way which is easy and hopefully mitigate the impact as much as possible.”

He said pre-pandemic Australia was enjoying population growth of about 200,000 a year, which equated to about 100,000 new customers a year for Telstra given it enjoyed a market share of about 50 per cent.

Telstra chief financial officer Vicki Brady said the flexibility built into Telstra’s postpaid offering would help consumer and small business customers shift around to different plans as needed. “Those customers do have flexibility, they’re not locked in,” Ms Brady said. “So as their needs change, maybe as their budget changes, they do have the ability to change plans. And we do compete in the market with a multibrand strategy. So the likes of (Telstra budget brand) Belong obviously plays an important part.”

Now that T22 is complete, Mr Penn is turning his attention to Telstra’s T25 strategy.

But Natalie Tam, the deputy head of Australian equities at ­Aberdeen Standard Investments, said Mr Penn had unfinished business in the top job.

“When he leaves it’ll be a really strong legacy. He did guide Telstra through some of its darkest moment,” Ms Tam said.

“If he does depart, I’d say Telstra has one of the strongest management benches on the ASX. There’s a lot of very senior talent within Telstra where you could draw a successor from.”

Telstra chief executive Andy Penn has made local and national phone calls free from the company’s network of pay phones.

She said the results were “a touch underwhelming” and on the lower side of expectations.

Underlying earnings were up 5.1 per cent at $3.5bn, and underlying earnings per share were up 55 per cent at 6.6c. Its strongest performer was its mobile unit, with earnings for the business rising 25 per cent. Telstra added 84,000 postpaid services in the six-month period, and the company said complaints to the Ombudsman in the last quarter of 2021 had halved compared with a year earlier.

Equities analysts at Barrenjoey Capital Partners said the result – on an underlying basis – was better than expected.

Mr Penn said despite rising inflation and low consumer confidence, Telstra’s postpaid segment was continuing to grow strongly.

“When it comes to discretionary spend, people have to prioritise, and … telecommunication services is going to be high up on that list,” he said.

“The last two years have shown us the criticality of communications (and) the demand for network quality has only increased.”

The company reaffirmed its annual guidance and the board maintained a fully franked interim dividend of 8c share, returning about $940m to shareholders. The dividend reinvestment plan had been reinstated.

“This was the second consecutive half of underlying growth,” Mr Penn said.

“The results show we have stayed disciplined and focused on delivering what we said we would.

“The benefits of T22 are flowing through for our customers and our shareholders.

“In addition to the impact of the NBN, the declines reflect the one-off gains last year, including the sale of our Velocity and South Brisbane exchange assets and the sale and leaseback of our Pitt St exchange

“Our reported total income includes declines of around $450m in one-off NBN receipts and around $200m in NBN commercial works, while our underlying results demonstrate the benefits of our T22 strategy.”

Moody’s vice-president Ian Chitterer said the results reaffirmed Telstra’s A2 credit rating.

“Fiscal 2021 looks to have been the turning point for Telstra’s credit profile,” he said. “Even if the company hits the low end of its $7.5bn-$8bn underlying EBITDA target for fiscal 2023, we expect its debt/EBITDA to be below 2x. This is supportive of its credit profile.”

Mr Penn said the Covid-19 pandemic had affected the company’s retail presence and its abilities to keep stores open.

“At times we’ve probably had 40 or 50 stores we’ve either had to have on reduced hours or closed completely for a short period of time, and I figure hopefully we are coming out of that now,” he said. “That’s been the biggest dynamic that’s been going on for consumers.”

Rival telco Optus last week announced it had landed former NSW premier Gladys Berejiklian to serve in a newly created role handling the telco’s government and business contracts, and Mr Penn said that appointment would help maintain healthy competition in the telco sector.

“I wish her the very best, she’s obviously a very experienced and capable leader,” Mr Penn said. “And I’m sure they will continue to be a very respected competitor in the market that we deal with. We will continue to be a very significant provider to government and enterprise and we just wish Gladys all the best in her new role.”

Moody’s Investor Service vice president Ian Chitterer said the results reaffirmed Telstra’s A2 credit rating.

“Fiscal 2021 looks to have been the turning point for Telstra’s credit profile. Even if the company hits the low end of its $7.5bn to $8bn underlying EBITDA target for fiscal 2023, we expect its debt/EBITDA to be below 2x. This is supportive of its credit profile,” he said.

Originally published as Telstra softens up mobile customers for inflation sting