Shareholders hanging on the line for details of Telstra’s strategy call

Expectations are building for some radical action from Telstra’s beleaguered boss as Bill Morrow lurks in the wings.

06/12/2016 Telstra CEO Andy Penn at Telstra HQ in Melbourne.Picture David Geraghty / The Australian.

Telstra boss Andy Penn received some rare support with JPMorgan upgrading the stock this morning helping to boost the stock price by 3.3 per cent to $2.85 a share.

The move came ahead of next week’s strategy day in which expectations are building for some radical action from the beleaguered boss.

Since last year’s dividend cut, the stock has posted negative total returns of 32.1 per cent against the market’s 8.9 per cent gain, a massive 41 percentage point under performance.

Over five years, the stock has posted negative returns of 18.9 per cent against the market’s gain of 60 per cent.

Granted rival telcos like Vocus and TPG have done a little better in recent times, in a large part due to margins being slashed due to the NBN rollout.

Telstra’s stock price has fallen from a high in February 2015 of $6.48 a share when Penn was appointed to $2.85 a share today.

A big fall came last August when the company cut dividends from 28 to 22 cents a share, which cut the floor from under the stock price.

Whether it comes next week or at the 2018 earnings release, the market is now widely expecting another dividend cut with UBS declaring “the dividend is not sustainable.”

Cost cutting or “productivity gains” is another agenda item, along with potentially wide ranging actions such as a rumoured demerger of the company’s infrastructure assets.

Ironically, this should have happened before the 2006 float of the company which split its retail and wholesale functions, if it was done then, we would have been spared the trauma of the NBN rollout.

The market is also expecting potential asset sale news from Penn along with more word on the much-hyped 5G rollout.

On the same day as the Telstra strategy day, David Kennedy from Ovum will release a 5G strategy paper which will put some reality into the present debate over the so-called bypassing of the NBN via 5G technology.

The average NBN customer now uses 200 gigabytes a month which is enough to stream around three hours of video per day.

The average mobile handset (admittedly 4G) uses five gigabytes a month, so the NBN is 40 times as powerful.

Granted NBN can be bypassed by investing more in fibre, as TPG is doing, and this gives the telco greater control over margins but its not quite the bed of roses some analysts are predicting because costs will also increase to rollout 5G.

Still, a study by indpedent analyst Ian Martin shows mobile growth has been strong in recent months, with Optus adding an estimated 50,000 subscribers in the March quarter.

Just how Telstra fares will be revealed next week but its market share may well have eased a touch to a still gigantic 51 per cent. Optus has around a 32 per cent market share.

With the exception of 5G news and the inevitable boom in the so-called Internet of Things, much of the expectation around Telstra next week is around cutting costs and rebasing earnings expectations.

Over three years into his job, Penn would be hoping to present a more positive outlook based on product revenue as opposed to financial engineering. Whether he can pulls this off remains to be seen.

Right now, Penn’s job is safe because he is in the middle of industry turmoil but as the next financial year rolls over, chair John Mullen will hear more shareholder talk about the need to change management.

A young fellow by the name of Bill Morrow steps aside from NBN later this year and just may be tempted by the challenge of taking the incumbent to the next level on a growth phase.