Telstra supports watchdog’s inquiry into NBN Co’s wholesale service

Telstra boss Andrew Penn has thrown his support behind the inquiry into the standard of NBN Co’s wholesale service.

Telstra ceo Andy Penn: ‘The composition of the pricing is the secondary point.’ Picture: David Geraghty.

Telstra boss Andrew Penn has thrown his support behind the competition watchdog’s inquiry into the standard of wholesale service provided by NBN Co as customer complaints increase.

“What the ACCC is really saying is that they want to make sure that the relationship between NBN Co and the retail service ­providers ensures that NBN Co meets a service standard that supports the RSPs,” Mr Penn told The Australian.

“We completely support that, and that’s exactly the world we live in today as the wholesale provider for most broadband service providers, and (we) have very stringent service standards on us.”

High wholesale prices charged by NBN Co have been cited as a contributor to poor service, ­although Mr Penn said minor changes to the pricing model would not solve service issues.

NBN Co boss Bill Morrow has flagged a cut to its wholesale prices next year with guidance set to land before Christmas, but Mr Penn said that while a lower connectivity virtual circuit price would help lift margins, the rise in access virtual circuit prices would need to be built into retail prices.

“The composition of the pricing is the secondary point. The primary point is the absolute level of wholesale and that’s ultimately going to be the thing that determines, most importantly, affordability for consumers over the longer term,” he said at Telstra’s investor day yesterday

The NBN, once completed, will punch a $3 billion a year earnings gap in Telstra’s accounts but Mr Penn reiterated that the telco had a strategy in place to ride out the next two to three years. “There’s no doubt that over the next two to three years the market faces a ­dynamic period but we are also very confident about some of the investment we are making in the future and how they will provide long-term value growth,” he told The Australian.

In September Telstra delivered pre-tax earnings of $10.7bn for the 2017 financial year.

Mr Penn said Telstra had ­already strengthened its Big Data, IoT and cybersecurity capabilities, with more solutions to hit the market next year.

However, he could not guarantee that Telstra could indeed hold the line on dividends, having ­already cut them for the present ­financial year.

“As you heard the chairman (John Mullen) say at the AGM, that he and the board would be disappointed if we were not able to maintain the dividends, but ultimately our ability to do so is ­really a function of how the market plays out.”

Telstra’s mobile margins are shrinking as prices drop in Australia. Meanwhile, data inclusions are becoming more generous as ­mobile operators compete to sign up customers. Optus and Vodafone have increased data ­inclusions by 88 per cent and 71 per cent respectively since June 2016 on the vital $40 price point. Telstra, on the other hand, has ­increased prices and reduced data inclusions at the $40 level.

A share price for telstra

Telstra is hoping the launch of its low-cost Belong mobile service would help it recover some ground in the budget segment of the market.

Head of consumer and small business Vicki Brady said the early performance of Belong had been encouraging. “While it’s very early days, we are very pleased by the ­initial traction of Belong mobile, which has achieved more than 1000 activations per week,” she told investors.

Belong, in tandem with Telstra’s established brand, helps the telco increase its addressable ­mobile customer base and with TPG’s impending entry into the market, Telstra will need to steal some share from Optus and ­Vodafone.

Mr Penn said the next quarter was going to be crucial for Telstra’s mobile business.

“What will be telling will be this next quarter because there will be new handsets coming into the market … there’s some positive momentum and there’s good ­demands around the Apple phones,” he said.

On the fixed broadband front, Telstra is getting ready to introduce unlimited data on its $99 and above plans for new and existing customers, and double the data ­allowances on other plans.