Telstra boss Andy Penn will ramp mobile investment to $5 billion for the smartphone video age

Ian Waldie/Getty Images

Telstra will spend $5 billion over the next three years to extend 4G to 99% of the Australian populations, to cope with an explosion in video and to maintain its leadership position on mobile.

The strategy to significantly increase capital expenditure is a major initiative for Andrew Penn who took over as CEO in May from David Thodey.

Part of the plan is to increase total capex investments to 15% of sales (from 14%) for the next two years, putting an extra $500 million in for mobiles for a total spend over three years of $5 billion. Telstra provides 16.4 million mobile services.

Penn points to the growth in smartphones which is driving data usage, with mobile data growing nearly 70% in 2014 globally.

The number of internet searches made from a mobile device now exceed those made from a desktop computer.

“The ability to watch content over an IP network is fundamentally changing the media industry,” Penn says.

Five years ago the amount of TV watched online was less than 5%. Video now represents more than 50% of all internet traffic as smartphones have become more powerful, social media platforms like Facebook have dialled up exposure of videos and telco networks have improved speeds for delivery.

Each month Australians are now watching more than 6 billion video streams, according to recent figures from Nielsen.

Telstra has been building its expertise in video, investing $500 million through acquisitions in Silicon Valley, Stockholm and London to build out its intelligent video platform — Ooyala.

Andrew Penn. Supplied

The software and analytics of Ooyala helps media companies improve the speed and quality of their content to multiple devices in multiple forms.

“We are committed to maintaining our network leadership in Australia – offering superior experiences for what matters most to customers,” Penn said in a speech to CEDA (Committee for Economic Development of Australia) in Sydney.

“Ultimately what customers want is better coverage, better call and speed reliability, fewer dropouts and faster downloads.

“Importantly Telstra‚Äôs network will be the best equipped to meet the explosion in video traffic.”

Penn’s announcement follows Optus which in May revealed a $1.75 billion investment in mobile infrastructure.

Competition in the Australian mobile market has increased over the last six months, driven by Optus and Vodafone being more aggressive in a bid to win market share away from Telstra.

Morgan Stanley, in a note to clients, says: “Mobile operators have dramatically increased the value of their mobile plans by increasing the data allowances and including entertainment deals.”

However, there have been no price decreases. In fact prices are rising.

Morgan Stanley says each mobile network has significant excess capacity and so have no reason to start a price war.

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