Telstra defends price hikes amid $800m upgrade and $750m share buyback

Australia’s biggest telco has defended price hikes as it spends $800m upgrading its network to power the AI boom and rewards shareholders with a hefty dividend increase.

Telstra boss Vicki Brady says the telco has a better network than rivals Optus and TPG.

Telstra has defended its price hikes as the telco giant says it will spend $800m upgrading its network during the next four years to ensure it can power the artificial intelligence boom and fend off increased competition from rivals TPG and Optus.

As part of the upgrade, Telstra will partner with Ericsson to “deliver advanced 5G performance”, which chief executive Vicki Brady said included “a move towards autonomous self-healing networks”.

Australia’s biggest telco also announced a $750m share buyback and increased its dividend more than 5 per cent on Thursday after delivering bumper half-year earnings, thanks “strong” performance in its mobile business and deep cost-cutting, including axing 9 per cent of its workforce.

No need to copy DeepSeek

Ms Brady said Australia needed to invest in “how we apply AI” rather then developing our own large language models like China’s DeepSeek, which has left Silicon Valley scrambling to maintain their tech dominance.

“There is a big race underway where we see huge investments going in (to AI). I don’t think Australia needs to be investing in things like building large language models. I do think that’s a global game,” Ms Brady said.

“But I think Australia needs to be really brilliant at how we apply AI in our environment, and that means we’ve got to have all the foundations there to enable that, and that does include digital infrastructure.”

Telstra shares leapt 5.6 per cent to $4.14 on Thursday, while the broader share market eased 1.2 per cent.

Intense competition

The telco is facing fresh competition from Vodafone owner TPG and Optus’s $1.6bn network sharing deal. TPG boss Inaki Berroeta says the tie-up will end Telstra’s ‘bush tax’, referring to Telstra’s plans being 24 per cent more expensive than Vodafone’s.

But Ms Brady said she oversaw a superior network and the $800m upgrade would cement that position.

“This (upgrade) is to extend our network leadership and deliver customers the most advanced, resilient and reliable mobile (network) in the country,” Ms Brady said.

“We have continued to deliver on our purpose through providing vital infrastructure for the nation, better experiences and new services for our customers, and the value we deliver to Australians through our financial outcomes.

“We have expanded our coverage to more than 3 million square kilometres, now reaching 99.7 per cent of Australia’s population. To put that in perspective, our mobile network covers more than double the area of Optus’s network, and around three times the area of the Vodafone/TPG network.”

Defending price hikes

Telstra hiked the price of plans $2-$4 or 4-5 per cent last year. But the jump in some prepaid services pushed into double digits -for example, the $35 monthly plan jumps to $39, or 11 per cent. And across some services sold through retailers such as JB Hi-Fi, the price rise also comes with a sharply reduced data allowance, sparking accusations of ‘shrinkflation’.

Chief financial officer Michael Ackland said price rises – which lifted average revenue per user 6.5 per cent – would pay for its network upgrades and maintenance.

And Ms Brady said it would ensure Australians had access to quality connectivity - a necessity in the era of AI, which will she said will change every job, including her own.

How CEOs can use AI

Ms Brady said she used AI regularly, including to help her anticipate questions from investors and the media as well as draft speeches and brainstorm ideas in leadership meetings.

“AI is an amazing tool to help. Getting it to help me ... preparing to put together a speech, using it to brainstorm with in our leadership meetings with my team, how we use it to help capture actions and follow up, how we use it to help summarise and digest information quickly,” Ms Brady said.

“It is really clear to me that connectivity is going to be absolutely critical. I’m not sure it’s always seen that way by people that are outside the telecommunications sector

“As we think about as a country how do we make sure we deliver on the productivity ambition, so we can be as competitive as possible as a country and grow living standards, it's not always obvious to people that all of this amazing technology needs to be connected.”

Earnings boost

Telstra’s revenue firmed 1.5 per cent to $11.6bn in the six months to December 31. Earnings before interest, tax, depreciation and amortisation rose 6 per cent to $4.25bn. This compared with analyst consensus estimates of $4.19bn.

“These are a strong set of results, delivering a fourth consecutive year of first half underlying growth, reflecting momentum across our business, strong cost control and disciplined capital,” Ms Brady said.

Overall, net profit jumped 6.5 per cent to $1.03bn.

Telstra reaped $128m from the sale of its 35 per cent stake in Foxtel and $137m from offloading its interest in Titanium Ventures, its former venture capital arm, buoying earnings.

Income from Telstra’s consumer business delivered the biggest bump, leaping 3.1 per cent to $5.5bn. Post paid average revenue per user increased from $53.18 to $53.60.

Its business and enterprise division, meanwhile, eased 1 per cent to $1.4bn, and its international business slumped 4.8 per cent to $1.26bn.

Ms Brady said last year that Telstra was struggling to keep up with Silicon Valley – which has been pursuing its lucrative enterprise clients – prompting it to axe 2800 staff, or 9 per cent of its workforce last May.

Resetting poor-performing enterprise division

But on Thursday, she said that progress was being made to “reset” its enterprise division, which included cutting its “product portfolio by two-thirds”, which will take several years to complete, and slashing costs. About half the job losses came from the enterprise division. Telstra says it has no completed those redundancies.

Ms Brady said core fixed costs fell 4.8 per cent, or $161m. “Cumulatively, we have reduced our core fixed costs by $283 million since FY22 and are on track to achieve our $350 million ambition by the end of FY25”.

Ms Brady said the $750m share buyback was “consistent with Telstra’s capital management framework and demonstrated board and management confidence in Telstra’s financial strength and outlook”.

“As we close out T25 and look towards our new strategy, our increased interim dividend and share buyback reflect the confidence we have in the business now, and into the future.”

Ms Brady also reiterated Telstra’s commitment to balance sheet settings consistent with an A band credit rating, with first half net debt to EBITDA of 1.9 times within its “comfort zone of 1.5 to 2.0 times”.

Cost cutting theme continues

eToro market analyst Josh Gilbert said: “cost-cutting has been a key theme” since Ms Brady succeeded Andy Penn in late 2022.

“ It was necessary to get the house back in order and that’s underpinning profit growth right now,” Mr Gilbert said.

“Ongoing operational efficiencies and its strategy to simplify the business have driven productivity gains, supporting margins and looks set to drive profit higher by more than 37 per cent for the full-year 2025.

“However, that doesn’t mean they aren’t investing in the right places. Telstra recently announced it will spend $700m over seven years rolling out AI across its business, one of the biggest deployments from any Australian company in AI to date.

“Telstra is the backbone of Australia’s telecoms, keeping millions connected daily. While it’s leading the charge in 5G and infrastructure, staying on top is no easy feat, meaning it still has plenty of work to do in the year ahead.”

Mr Gilbert said Telstra “difficult period” was reflected in its share price gaining just 3 per cent in the last 5 years, “saved only by its dividend returns in that time”.

 “Regardless, it’s a quality business with a fantastic dividend – and 2025 might be the year it catches a break.”

Share buyback and dividend bump

The on-market share buyback is expected to begin after March 12 and will be completed during the 2025 calendar year. The exact amount and timing of the buyback will be dependent on market conditions, Ms Brady said, adding FY25 earnings guidance “remains unchanged”.

Telstra will pay an interim dividend on 9.5c a share, fully franked, on March 28.