NBN to halve Telstra’s profit, chair says

Government “now effectively renationalising half of the company again,” Telstra chairperson says.

When the roll out of the NBN is completed, expected at the end of 2020, it “will have reduced Telstra’s net profit after tax by close to a half,” Telstra chairperson John Mullen said today in remarks prepared for the telco’s AGM. “Not a few per cent, half,” Mullen said.

The network, being rolled out by the government-owned NBN Co, is “the single biggest impact on Telstra’s financials, and the impact is profound.”

Telstra was privatised in 1997 but the government is “is now effectively renationalising half of the company again” through the compulsory migration of households to NBN Co’s infrastructure, Mullen said.

“To give some scale to that impact, what we are losing through this policy of half our business is approximately equivalent to a company the size of Qantas,” the chairperson said.

“This has also led to increased competition in mobiles and, in turn, the entrance of a fourth mobile operator in the form of TPG, now in a proposed merger with Vodafone.”

Telstra’s CEO, Andy Penn, has previously indicated the company expects a $3 billion hit to EBITDA from the NBN.

Mullen said today that “there is no magic bullet that can fix the loss of up to half of a company’s net profit”.

Penn earlier this year unveiled a new strategy for the company dubbed ‘Telstra2022’ or ‘T22’.

“The Australian telco market is entering an extremely challenging period driven by a number of factors including the NBN transition and increased mobile competition,” Penn said in June when Telstra first released details of T22.

The strategy includes a net 8000 reduction in head count as part of an effort to further slash costs and simplify the telco’s structure, shifting fixed-line infrastructure into a new ‘InfraCo’ business unit that could potentially be spun out of Telstra, and simplifying the company’s products.

“T22 is about massively simplifying our operations and product set, improving the customer experience and reducing our cost base,” Mullen said.

“We need to completely transform Telstra into the telecommunications equivalent of an Amazon, Uber or Netflix. A company really easy to interact with, offering great service, clear products, and with customer interaction predominantly online.”

Mullen said that Telstra’s board would today suffer its first strike, with a substantial minority of shareholders expected to vote against the telco’s executive remuneration packages. A second strike would see a spill of board positions.

“This is deeply, deeply disappointing to my board colleagues and me,” Mullen said.

“I simply cannot overstate the amount of time we devote to remuneration and how seriously we take the responsibility.”

The chairperson said in his view executive salaries are too high across the board in Australia, “but changing this takes time and needs to be embraced by all of corporate Australia not just one company or one industry, as the marketplace for talent is international and is industry agnostic”.

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