Telstra faces $80m hit to earnings

11.Telstra faces Dollar80m hit to earnings

By Trevor Chappell

Melbourne

(Australian Associated Press)

The competition watchdog’s push to make Telstra cut prices for other telcos accessing its copper wire network could affect future investment decisions and eat into profits.

Telstra estimates that the ruling by the Australian Competition and Consumer Commission last Friday will cut $80 million from the telco’s revenue and earnings.

Chief executive Andy Penn, who on Tuesday addressed his first Telstra annual general meeting since becoming chief executive in May, said the telco was considering an appeal against the ACCC’s order for a 10 per cent price cut.

Mr Penn said any regulated entity should be concerned by the ACCC’s decision, which went against the watchdog’s own principles.

Those principles should allow a regulated company investing in infrastructure, such as Telstra, to recover the costs of providing that infrastructure to every body that uses it.

Otherwise, investment in important infrastructure was unlikely to be made.

“If we’re not able to recover the costs, which is what the principles say, then obviously that has to influence decisions in the future,” Mr Penn told reporters after the meeting.

“The short-term implication is that it impacts Telstra’s profitability by up to $80 million in FY16 (2015/16 financial year).

“But it also introduces price instability during an important period to the NBN (National Broadband Network), so I don’t think it could be good for anybody.”

Telstra had argued that the migration of services to the NBN meant it had to charge its remaining fixed line customers more to maintain the same level of service.

Telstra had 211,000 NBN customers at June 30.

Mr Penn said a separate ACCC ruling on wholesale prices for mobile terminating access services would reduce revenue by $350 million but not have a material effect on earnings before interest, tax, depreciation and amortisation.

Telstra made a $4.23 billion profit in 2014/15, and lifted total dividends for the year to 30.5 cents per share, up 3.4 per cent on the prior year.

The telco also completed a $1 billion share buy-back.

The annual gathering of Telstra shareholders was a surprisingly short and tame affair, given that the telco has such a large base of “mum and dad” investors.

Questions on the company’s business and financial reports opened with more than a minute of silence from shareholders, and the five subsequent questions from the floor required barely 20 minutes in total to cover.

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