Telstra’s losing muscle
Just when baby boomers are pouring their hard-earned savings into Telstra’s (ASX: TLS) high dividend yields, the Australian Competition and Consumer Commission (ACCC) has announced a price change for regulated infrastructure that weakens the company’s moat. It therefore has more meaningful financial implications – through long-term valuations – than the immediate impact on prices.
The ACCC’s latest decision regarding pricing for competitors to access Telstra’s copper network suggests Telstra is losing its battle to retain dominance in this part of its business.
The ACCC has issued its draft decision on the prices that operators pay Telstra to use its copper network to provide telecommunications services to their own consumers.
The draft decision covering 1 July 2015 to 30 June 2019 is for a one-off uniform fall in access prices of 0.7 per cent for the seven access services. Note that in October 2014, Telstra was hoping for a one-off 7.2% price increase as a way to offset lost revenues from declining telephony volumes (by making other customers pay more).
“The draft decision on prices ensures nominal price stability in the wholesale market for telecommunications services and will promote competition in the transition to the NBN,” ACCC Chairman Rod Sims said.
“Given current inflation however, this uniform price fall means the price access seekers pay will decline in real terms over the next four years by around 12 per cent.”
Additionally, Telstra will not be able to charge rival telcos for using parts of the network – such as ducts – that it will lease to the NBN.
It’s a bit humorous but Optus is pouring salt into Telstra’s wounds. Telstra and Optus disagree about whether NBN Co is fully compensating Telstra for making its network redundant. “We think there’s a case for further price reductions,” an Optus spokesperson said.
You can read the decision here.
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John E
:
At least the fixed lines business is a declining part of the overall business as the (slow) migration to the NBN continues – along with further migration to mobiles and VOIP. And TLS are continually getting payments from the NBN as customer transfer.
So this decision certainly isn’t as bad as it would have been in the past. But it is an ongoing challenge for TLS to replace these declining revenues.