Telstra feeling the pressure of NBN rollout

TELSTRA may need to cut costs more aggressively as revenue comes under pressure amid the rollout of the National Broadband Network and intense competition, Australia’s biggest listed investment company says.

The rollout of the National Broadband Network is adding to pressure on Telstra.

TELSTRA may need to cut costs more aggressively as revenue comes under pressure amid the rollout of the National Broadband Network and intense competition, Australia’s biggest listed investment company says.

Mark Freeman, managing ­director of Australian Foundation Investment Company, says the telco sector is an increasingly “tough space” as competition for customers drives prices down.

Mr Freeman said that trend would become more pronounced as the migration of wholesale customers to the NBN took away about $3 billion in revenue annually and rival TPG Telecom launched its mobile network.

“I would be saying for some period ahead once TPG get their network up and running, they are going to be very aggressive on price,” he said. “It is going to be a tough space as a three-player market becomes a four-player market.”

Last June, Telstra revealed it would cut 1400 jobs from its workforce of 32,000.

“(With) Telstra, I still believe there is still an operating cost that perhaps is too high and perhaps more can be done there,” Mr Freeman said.

At December 29, AFIC held about $190 million of Telstra, making up about 2.7 per cent of its overall portfolio — its 10th-biggest individual holding.

Telstra will report its half-year results on February 15.

Mr Freeman said there were “positives” for the telco, including being the best mobile network, with overall customer usage increasing and more devices becoming connected in the era of the “internet of things”.

“You could argue ... you’ve had that growth for a number of years but it hasn't necessarily translated into profit growth, it just means providers just keep cutting prices,” he said. “(But) while you wait for something to happen you are still getting a very good grossed return (from Telstra).”

Mr Freeman was commenting as AFIC posted a net profit of $136.4 million for the six months to December, up 15.6 per cent from a year earlier.

Its interim dividend, to be paid next month, is unchanged at 10c a share. The Australian-focused value investor has a market capitalisation of about $7.45 billion.

The results are Mr Freeman’s first as chief executive after veteran head Ross Barker stepped down at the end of last year following a 17-year stint.

While its top 10 holdings were unchanged — which includes the big four banks and miners BHP Billiton and Rio Tinto — AFIC did purchase shares in Macquarie Group, Westfield and CSL.

Mr Freeman said global equity markets had risen over the last six months, with many economies showing improved growth.

Major sales included a reduction in the holdings of Incitec Pivot, Coca-Cola Amatil, QBE Insurance and Japara Healthcare.