Telstra: we're shifting from wholesaler to reseller

Telstra is still working away at plugging the $3 billion hole in earnings that will be left after construction of the NBN is complete, hinting at new initiatives to come as part of the monolthic digitisation and network upgrade program.

Speaking at the Macquarie Australia Conference today, Telstra chief financial officer Warwick Bray discussed the challenges Telstra and other retail service providers still face with customers migrating to the NBN.

"The NBN rollout is changing the economics of our industry and having an impact on Telstra's EBITDA. We are shifting from being a wholesale provider of fixed services to being a reseller," said Bray.

"Wholesale broadband prices through NBN have more than doubled from those on the copper network and are set to increase even further. That increase has so far been absorbed by the retail service providers, in some cases to the point where providing an NBN service is uneconomic."

Bray said the scenario would need to change if Telstra wants to avoid charging customers with higher long-term prices.

Last August, Telstra estimated that the impact of customers migrating to the NBN would leave a $3 billion hole in the telco's earnings. Bray said this was due to rising wholesale broadband prices as well as "industry conduct."

So far, Telstra has absorbed $870 million of that earnings shortfall. Bray said that in the first half of this financial year, Telstra has also reduced the underlying core fixed costs by $249 million.

Telstra is hoping to plug that hole with a series of initiatives that come as part of the $3 billion digitisation program and network upgrades announced back in 2016. Telstra has already spent more than $1.5 billion of capex on the program with significant new capabilities stemming from digitisation, including the introduction of Telstra's programmable network product and enabling self-service for customers that sign up to the NBN.

Bray hinted at some new initiatives coming as part of the digitisation program, including transferring Telstra's CRM systems to a single cloud-enabled Salesforce platform, which would allow the company to shut down five legacy systems. Telstra will also roll out a new unified identity platform to allow customers to seamlessly switch between Telstra apps, replacing nine legacy platforms.

Bray also gave an update on some of Telstra's fastest growing business practices, including the internet of things business, which is close to reaching $200 million in annual revenue.

In August last year, Telstra activated its IoT network with CAT-M1 support, which covers three million square kilometres and 99 percent of the population. This was followed up in January when Telstra switched on support for narrowband IoT in all major cities and some regional towns. Telstra has a consumer IoT platform, which has 15 smart home devices available to purchase.

Telstra's Network Applications and Services business, the enterprise services arm, also continued to grow in the first half of the year to almost $1.7 billion in revenue, up 14.1 percent. Bray pointed towards strong growth in cloud, integrated services and commercial works, as well as strong demand in cyber security services.