Advertisement

Trifecta of bad news for Telstra

New challenges for the Telco mean bad news for almost every Australian.

New challenges for the Telco mean bad news for almost every Australian.

A huge number of Australians face bleak news from Telstra, the telco that continues to dominate the market arguably at the expense of competition, taxpayer dollars and investor dividends.

Credit ratings agency Moody’s issued a research note on Thursday predicting that Telstra’s earnings margin is likely to remain steady for the next two years, thanks to billions in taxpayer compensation for the NBN rollout, then drop thereafter due to falling revenues, new fees and competition pressures.

“We believe that Telstra will be able to fill this EBITDA [earnings before interest, tax, depreciation and amortisation] gap to a certain extent, but will be challenged to do so fully,” the research note concluded.

Independent telco analyst Paul Budde told The New Daily the company does indeed face new challenges, and that consumers, investors and taxpayers were likely to suffer a “raw deal” as a result.

Bad news for taxpayers

telstra graphicAs noted by Moody’s, Telstra is reaping billions in taxpayer funds to compensate it for lost revenue as a result of the NBN rollout.

Mr Budde said taxpayers are getting “a terrible deal” as a result of a “double whammy”: the cost of compensation, and the economic burden of a “second-rate” NBN network.

“We have the situation where we’re still paying the billions of dollars [in compensation to Telstra], but we don’t get the infrastructure that will benefit the economy and society of Australia. That’s a very raw deal for taxpayers,” he said.

“At the same time, most of the contracts for building the new network go to Telstra as well, so it’s a double-whammy for the taxpayers in that respect. In the end, you’re talking about something like $20 or $25 billion that’s going to be spent from taxpayers’ money on this and 80 or 90 per cent of that will go to Telstra.”

Bad news for investors

telstra graphicIn its research note, Moody’s said Telstra would find it difficult to match current revenues once the NBN rollout is completed by 2020.

By that time, the telco’s overall earnings margin is likely to have fallen from the 2015 level of 42 per cent to the high 30s, the agency said.

If the company fails to fill the earnings gap, it may be forced to reduce dividends, Moody’s said. This is a bad sign for Australians invested in Telstra shares directly or through their retirement funds.

Mr Budde was pessimistic about the company’s chances of earning sufficiently large streams of new revenue from its recent push into the “very competitive” software market — dominated by companies like IBM, Cisco and Accenture.

“It will be very, very challenging and is far riskier and therefore there is a greater risk to investors in the future because on one side the extra money is running dry, and on the other side there is no real indication that new services are going to be huge money-spinners and profit-earners for the company.”

Bad news for consumers

telstra graphicTelstra’s already tarnished reputation has been imperilled further by at least six recent network outages.

And despite Moody’s prediction of increased competition, Telstra is still dominating the rollout of the NBN.

The ACCC reported on Friday that most new sign ups to the NBN are with Telstra. This despite the fact the NBN Co has levelled the playing field by taking the network out of Telstra’s control.

Mr Budde attributed the string of network outages to a deliberate lack of investment in infrastructure, to the detriment of consumers.

“It’s not just a one-off, and it’s far more complex than everybody thought at the beginning. And I think that has to do with the fact that when the government started to announce the NBN, Telstra basically said, ‘Okay, it is useless for us to start investing in infrastructure that we are not going to use’.”

Mr Budde was also concerned by the fact Telstra remains the “Big Brother” in the market due to its “enormous” financial power because this means consumers fail to reap the full benefits of competition.

“Telstra still gets most of the new services and — what I think is the most difficult thing for competition — they have billions and billions of dollars that they can use to advertise or to do whatever they want to do.

“If you had a more balanced market, then there would be two or three companies around the 25-30 per cent [market share], and then a bunch of smaller companies. But we don’t have that sort of balance.”

Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter
Copyright © 2024 The New Daily.
All rights reserved.