Telstra's results show how a big chunk of its business is getting demolished as old-school phones disappear

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  • Telstra’s overall fixed line revenue — the money that comes from providing services over traditional phone lines to homes and offices — fell by 9.2% to $5.81 billion in 2018.
  • “Fixed voice”, a component of fixed line revenue which involves traditional phone services, declined even faster, down more than 15% to $2.64 billion.
  • The drop is a symptom of the nbn roll-out.
  • In response, the telco has accelerated its restructure and cost-cutting.

Telstra’s revenue is shrinking, squeezed by increasing competition and by the roll-out of the nbn eating into its fixed line business.

Australia’s biggest telco, saying it faces “times of enormous challenge and change”, today reported a 8.9% fall to $3.53 billion in full year profit.

In the pre-nbn world, a fixed phone line — the traditional hard line that connects to a telephone — was usually required for Telstra and some other providers to deliver internet to a home or office. But the nbn needs no accompanying fixed line, and as the network rolls out the revenue from that division is collapsing at a rapid rate.

Overall revenue was flat at $26.01 billion and in 2019 Telstra expects income to be weaker than last year.

Here’s how Telstra’s business was eroded in 2018:

  • Overall fixed line revenue fell by 9.2% to $5.81 billion, impacted by an increased rate of nbn migration and competition.
  • Revenue from fixed voice dropped 15.4% to $2.64 billion due to lower usage.
  • Retail fixed voice subscriber numbers fell in line with the nbn rollout, dropping 472,000, taking total retail fixed voice customers to 4.9 million.
  • Fixed data revenue fell 0.2% to $2.544 billion, as retail fixed data revenue growth of 4.1% was offset by lower wholesale revenue due to nbn migration. There were 88,000 retail fixed data net subscriber additions, bringing total retail fixed data customers to 3.6 million.

“The current competitive environment is expected to continue to intensify in the year ahead, just as it has done over the past 12 months,” says Telstra in its outlook report released with the annual results.

In response, Telstra has accelerated its cost cutting and restructuring.

The idea of its Telstra2022 strategy is to simplify operations and products, and improve customer experiences.

Source: Telstra

The net cost productivity target has been increased to $2.5 billion by the end of 2022. Telstra now expects to achieve more than $1.5 billion in cuts by the end of 2020.

The company is also looking at assets sales of $2 billion over the next two years to strengthen the balance sheet.

“The organisation we are becoming will look vastly different to the one we are today,” says Telstra.

“Our workforce will be a smaller, knowledge based one with a structure and way of working that is agile enough to deal with rapid change.”

Part of this is shedding staff, about 8000 of them over the next three years, including reducing the levels of management to two levels from four.

Telstra expects additional restructuring costs of about $600 million this financial year.

Labour expenses fell in 2018 by 4.% or $224 million to $5.16 billion.

Total full time staff and equivalents was steady at 32,293, with an increase in domestic numbers offset by an offshore reduction.

At the same time Telstra is spending to re-position itself in the market.

In 2019, capital expenditure is expected to be between $3.9 and $4.4 billion or about 16% to 18% of sales.

CEO Andrew Penn says the strategy builds on the foundation provided by Telstra’s up to $3 billion strategic investment in creating the Networks for the Future and digitising the business.

So far Telstra has invested $1.8 billion, including $1.5 billion in Networks for the Future as the company prepares for the launch of 5G, and $300
million on digitisation.

“Our ongoing strategic investment in the performance of our mobile and fixed networks for our customers has been recognised by a number of key industry benchmarks,” he says.

“We were ranked number one on the Netflix Speed Index in July 2018 and also became the first Australian provider to win both the fixed and mobile Ookla fastest networks for Q1-Q2 2018.

“We also continued to make significant progress in preparing for the commercial launch of 5G, which is central to Telstra’s network investment strategy, through a number of major milestones.

“Yesterday we announced we had switched on 5G technology across selected areas of the Gold Coast, making us the first in the country to be 5G ready, and we expect to have more than 200 5G-capable sites live around the country by the end of 2018.”

The results of Telstra fixed line business:

Source: Telstra

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