Customers not focus on price alone, says TPG Telecom boss says as he prepares for further hikes

The telco is preparing to raise the price of its Vodafone plans by $4 a month on average in coming weeks, but its CEO says the cost per gigabyte continues to fall as consumers demand more data.

TPG CEO Inaki Berroeta said the company’s transformation continues at pace. Picture: Adam Yip

Australians are shopping around for better deals on phone and internet plans – but are not haggling over price, the boss of TPG Telecom says as the company’s profit plummets.

TPG’s mobile revenue surged 9.3 per cent to $2.2bn last year after it signed on 175,000 extra customers and raised prices. And the nation’s third-biggest telco is planning to hike prices again in March, lifting the average cost of its flagship Vodafone plans by $4 a month.

But chief executive Inaki Berroeta said customers were looking beyond price tags when considering switching telcos, although he did caution that growth would moderate this year.

“Looking into what is happening in the market, with the cost of living pressures, it is normal that people are looking at the different movements around different products,” he said.

“Telecommunications is about 3 per cent of the expenditure of a household. The truth is that a lot of the ARPU (average revenue per user) increase that we see is really due to the fact that the consumption is growing significantly. So the price of certain plans have gone up, but the increases of what comes with that plan has also gone up significantly. And that is a response to growing demand for the services that we provide.”

Australians used 25-30 per cent more data last year, but that has not been reflected in the cost of mobile plans, Mr Berroeta said. “The industry has managed to sustain that level of consumption increment, with very little impact on the expenditure of customers, so the unitary price of the GB continues to fall.”

Despite the growing demand for mobile services, TPG’s earnings in the year to December 31 missed analyst estimates, while its outlook was weaker than expected, sending its shares tumbling 8 per cent to $4.93 on Monday.

TPG has spent $20m revamping its Vodafone stores.

Net profit dived to $49m in the 12 months to December 31. This compared with the previous year’s $513m, which included a $402m sugar hit from the sale of its mobile towers and rooftop infrastructure to Canadian pension fund OMERS.

Still, analysts were expecting net profit of $126m. Jarden analyst Tom Beadle attributed the miss to a $17m impairment – from “retiring” its Internode brand – and “materially high net finance costs”, which soared from $187m to $341m.

“While it was expected that interest costs would increase sequentially in 2H23, the magnitude was unexpected,” Mr Beadle wrote in a note to investors.

Analysts also expected TPG to gain a further windfall from Optus’s national outage, which cut off about 10 million Australians from phone and internet services for 12 hours.

But Mr Berroeta said the actual number of aggrieved Optus leaving the Singapore-controlled telco was immaterial. Telstra chief executive Vicki Brady made a similar observation, saying that “tens of thousands” out of those 10 million customers ended up switching providers following the outage.

“We did see significant growth on the day of the outage and subsequent days. But in terms of the materiality of these, I would say that, it’s probably to a certain extent on the same level that Telstra was saying. It was not a very material event in terms of customer movements,” Mr Berroeta said.

TPG’s average revenue per user in mobile surged 4.7 per cent to $33.5 a month, driven by gains in postpaid, the ARPU of which vaulted 8.5 per cent to $45.8 a month. Overall group revenue firmed 2 per cent to $5.53bn.

UBS analyst Lucy Huang said earnings misses mainly were from its enterprise division – which generated a 1 per cent rise in revenue to $1.01bn.

“By product, mobile services revenues were in line with us and consensus due to slightly better subs growth in prepaid and slightly better postpaid ARPUs (average revenue per user), driven by capture of price increases,” Ms Huang said.

While earnings missed consensus analyst estimates, Mr Berroeta highlighted that the company still delivered on the top range of its guidance and said its transformation continued at pace. TPG has slashed the number of products it offers, including “non core” email platforms and a 40 per cent cut to the number of in-market plans.

He said this was setting the company up for further growth and would position it ahead of its competitors when interest rates fall.

“We are in a big investment cycle,” Mr Berroeta said. The company spent $20m alone revamping its Vodafone stores last year.

“We need to conclude two things. One of them is 5G rollout, and the other thing is a simplification of our IT infrastructure and our commercial proposition. This will last between two and three years.

“On the back of that what you have is good underlying performance, significant reduction on investment, but also I think that we will benefit more than others when we see interest rates going down. Our level of debt was high compared to peers, so that means that we are more exposed to interest rates going up. I think that when interest rates go down, that means it will favour us more than the others.

Mr Berroeta said the company’s 5G rollout was on schedule, with more than 3000 mobile sites upgraded. This lifts the total number of sites upgraded to 5G to 5700, with works to its remaining metropolitan sites set to be completed by 2026.

The company expects to deliver underlying earnings before interest, tax, depreciation and amortisation of $1.95bn and $2.03bn. This is 2 per cent lower than consensus analyst estimates at the midpoint.

The company will pay a final dividend of 9c a share, fully franked, on April 12. This is unchanged from last year, and takes the full annual investor payout to 18c a share.