Telstra boss 'cautiously optimistic' for 2020 despite challenging year ahead

Telstra chief executive Andy Penn is bracing for a difficult 12 months while the National Broadband Network is rolled out in almost third of Australian households but expects conditions to improve once the company's ultra-fast 5G network is launched.

After a dramatic 2018 that saw the telecommunications company reveal plans to slash 8000 staff and embark on a radical fightback strategy, Mr Penn say he is happy with how his “Telstra 2022” plan to turnaround the company's brand and fend off competitors is progressing after seven months.

Mr Penn, a former Telstra chief financial officer who took over the top job in in 2015, expects the challenging facing the company will ease off in 2020 now that the majority of Australians are connected to the NBN.

Telstra chief executive Andy Penn.Credit: Ryan Stuart

"My view is the next 12 months is going to continue to be economically challenging because we’re probably going to have to absorb another 30 per cent [of the NBN roll-out] this calendar year," he said. About 55 per cent of households are currently connected to the NBN which has reduced the profitablity of Telstra's broadband division.

Nevertheless, he was "cautiously optimistic because as we get towards the end of 2019 calendar year we have a few things running in our favour" including a potential change in government that he believes could result in a pricing change for the NBN.

A major cause for the Telstra boss’ optimism is the upcoming launch of 5G, a new technology that is expected to enable new business applications with connected sensors and equipment such as driverless cars and remote robotic surgery. This is expected to be lucrative for telcos if they can position themselves as more than just the provider of "pipes" delivering signals.

Australians will be able to use the 5G network in the first half of this year, with Mr Penn recently announcing plans to offer several compatible smartphone brands.

While Mr Penn would not reveal the smartphone provider for this launch, sources familiar with the telco plans have confirmed it is neither controversial Chinese provider Huawei nor popular US giant Apple.

"We’ll start to see some scale on 5G," he said. When it launches, the first customers are expected to get the best experience as there will be relatively low usage compared to the current 4G network.

Mr Penn expects tech-savvy, high-data users will quickly switch over to experience the new technology, which in turn will take pressure off the 4G network in what he describes as a win-win for mobile users.

"It will lead to quite an improvement in customer experience,” he said.

He also thinks the fierce competition seen in the industry might start to ease off after a particularly difficult patch for mobile providers.

"Telecommunications is quite a cyclical business from a competitive standpoint and in the early stage of a new generation ... you tend to find the competition will look to get paid back the value they just invested in all the capital expenditure and it’s at the back end of the cycle that they tend to compete more. We’re at the tail end of the 4G cycle at the moment," he said.

Another reason for optimism at Telstra is the effect of simplifying its mobile and broadband plans, including providing "peace of mind" data to avoid the much-complained-about pain point of unexpectedly high bills, and modernising internal systems.

While Mr Penn can't yet speak about the specific numbers of customers his strategy has managed to secure (Telstra is due to report financial results this week and is under disclosure obligations), he said the "momentum is pretty solid in terms of the operating metrics, in terms of customer wins and retentions".