Telstra, Australia’s largest telephone firm, posted an unexpected drop in first half profit and cut its full-year revenue guidance to the bottom end of its previously forecast mid to high single digit growth range.
The company’s share price tumbled almost 5% on the news, falling below $5.
The company is in the midst of a move away from being the country’s telecom infrastructure provider to a pure play retail and corporate communication services firm as Australia’s National Broadband Network moves closer to its 2020 completion date.
Telstra’s profits and dividends are being sustained by generous government payments agreed to facilitate the transition of internet customers off Telstra’s networks on to the NBN for now. However investors will be looking at how the company navigates the transition.
The following three charts illustrates the challenges ahead.
1. Retail revenue: Telstra Retail, which provides telecommunications products, services and solutions to individual customers and small to medium sized businesses, saw income fall by 5.6%. Even after excluding the regulatory changes that hurt the fees it charges rivals for access to its network, income slid by 1.8%. This is a market that Telstra needs to grow to sustain earnings in a post NBN world.
2. Falling sales: The following chart shows almost all of Telstra’s main products saw declining sales with only new businesses such as cloud growing. Clearly that will get investors worried in a crowded market that is seeing cut throat pricing.
3. Mobile revenue is a problem: It is a known that fixed telephony is passe. What is worrying for Telstra is falling revenue from its mobile business. Mobile revenue decreased by 8.7% (excluding the regulatory impact, it fell 2.4%) in the six months ended December 31 from the previous year. While it nudged to $5 billion from $4.9 billion six months earlier, it is still a long way away from where it was a year earlier.
That was largely due to drop in mobile broadband revenue, which fell 14.7% due to a shift from old dongle plans to newer cheaper tablet plans and and increased sharing of data through mobile handsets.