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Telstra Annual Report 2016

Telstra Annual Report 2016

Telstra Annual Report 2016


"Our business is fundamentally changing as a consequence of market developments, increased competition and technology innovations."

We are also seeing demand for our services continue to grow which creates significant opportunity for us. In this environment, it is more important than ever that we do not stand still and that we are effective in pursuing our vision to become a world class technology company that empowers people to connect.

Over the next five years, the migration to the nbn network will impact our earnings. The forecast net effect of the nbn rollout, in transitioning costs and operational access costs will be a reduction of $2-3 billion in EBITDA per annum at the conclusion.

To offset the impacts of the nbn network, we remain focused on achieving our productivity ambitions and reengineering our business to deliver world class experiences, products and services for our customers.

Our earnings composition is shifting in line with the income mix of our products and, as our new businesses grow and make a larger contribution to revenue, our profit margins are changing. In the coming year our objective is to manage the dynamics of the nbn rollout and increased competition while accelerating our productivity program, leveraging our core strengths and driving value through our investments.

In the coming year our objective is to manage the dynamics of the nbn rollout and increased competition while accelerating our productivity program, leveraging our core strengths and driving value through our investments

Our customers and our networks are our biggest assets, which is why we need to invest to set new standards and deliver excellent experiences for our customers, and to support our increased aspirations in a measured, prudent manner for shareholders. The new wave of investment we have announced over the next three years will position us to deliver significant customer benefits and reinforce our market differentiation over the longer-term, as well as deliver business benefits such as capital efficiency, reduced operating costs and increased revenue.

Our vision is to become a world class technology company that empowers people to connect. Our strategy to achieve this is unchanged and remains the right one to deliver for our customers and shareholders. We are determined to maintain our network superiority, to improve our service interactions and the value we offer our customers, to pursue growth opportunities and to create long-term shareholder value.

Five Year Results and Operational Review:

Reported Results

Following the completion of the sale of a 47.4 per cent stake in online business Autohome on 23 June 2016, the numbers and commentary in the segment, product and expense sections have been prepared on a continuing operations basis and align with the statutory financial statements. That is, they exclude the trading results and sale of Autohome shares. We continue to hold a 6.5 per cent stake in Autohome. The financial position section has been prepared on a continuing

This guidance assumed wholesale product price stability from the beginning of the financial year and no impairments to investments, and excluded any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. Capex to sales guidance excluded externally funded capex.


Segment Performance:

We present our reportable segments and measure our segment results on the same basis as our internal management reporting structure. Our reportable segments represent the respective business units which offer our main products and services in the market. Further information on each reportable segment can be found in Note 2.1 of the Annual Report.


Telstra Retail

Telstra Retail income declined by 1.5 per cent to $16,656 million while EBITDA declined by 3.9 per cent to $9,220 million. The decline in EBITDA is largely a result of the decline in fixed voice margins and the impact of the migration to the nbn network. Telstra Retail comprises our Consumer and Business business units.

Income in our Consumer business unit declined by 1.2 per cent. Excluding the impact of the Mobile Termination Access Service (MTAS) decision, on a like-for-like basis, income grew by 1.0 per cent. The MTAS decision relates to regulatory changes to voice and SMS terminating rates which became effective from 1 January 2016. While there was subscriber growth in mobiles and fixed data, lower average revenue per user (ARPU) impacted overall revenue growth. An increase in the take up of bundles and nbn plans saw fixed data revenue grow by 6.2 per cent. The rate of consumer fixed voice revenue decline was broadly stable at 7.7 per cent. During the year we adjusted mobile data and international roaming rates which impacted revenues in the mobile business. ARPU (excluding the impact of mobile repayment options) decreased as a result, however minimum monthly commitment grew over the period for post-paid handheld.

Telstra Wholesale

Telstra Wholesale income grew by 1.4 per cent to $2,622 million. This was largely a result of an increase in Infrastructure Services Agreement ownership receipts which have increased in line with the nbn rollout, offset by price reductions from the ACCC’s fixed line service Final Access Determination (FAD) which became effective on 1 November 2015. EBITDA contribution increased by 1.4 per cent to $2,426 million


Product Performance


Fixed revenue declined by 2.2 per cent to $7,029 million with fixed voice revenue decreasing by 8.2 per cent to $3,437 million. Excluding the adverse impact  of the ACCC Final Access Determination (FAD) decision of $64 million, on a like-for-like basis, fixed revenue declined by 1.3 per cent. The FAD relates to pricing for fixed services, set by the ACCC, which became effective 1 November 2015.

Retail fixed voice line loss in the year was 271,000, a rate consistent with the prior year, taking total retail fixed voice customers to 5.7 million. The decline in fixed voice revenue was partially offset by the growth in fixed data revenue of 5.6 per cent to $2,513 million as a result of growth in subscribers. 

We now have 3.4 million fixed retail data customers, an increase of 235,000 for the year, the highest rate of net adds in over five years. This solid result has been driven by the continued focus on customer retention and momentum from bundling. Our challenger brand Belong® also contributed to the subscriber and revenue growth. 

Our bundled products, including our “best value bundle ever”, launched in March 2016, and the Telstra BizEssentials Bundles® for our small business customers are both performing well. 

The total number of retail customers on a bundle increased by 322,000 and there are now 2.7 million retail customers on a bundled plan, or 83 per cent of the retail fixed data customer

Customer Experience

Keeping vulnerable customers

Through our Access for Everyone (A4E) program, we help people on low incomes or facing financial hardship to stay connected. Since its inception in 2002, we’ve provided benefits to the value of more than $2 billion and have worked with more than 2,000 community organisations across Australia to deliver these programs. In FY16, the benefit provided to vulnerable customers through our A4E programs was $107 million, a reduction of 16 per cent compared to FY15, largely reflecting a lower take-up of our pensioner discount on fixed-line home phone services as more customers move to bundles. Around 758,000 pensioners received the discount this year to the value of $86 million, compared to 885,000 people and a value of $101 million in FY15. We provided home phone line rental relief for about 51,000 households and distributed around 95,000 pre-paid payphone and mobile phone calling cards (including Phonecards) and mobile phone recharge cards this year, compared to around 81,000 cards in FY15. Every month we also provided rebates on Telstra bills for around 1,700 customers seeking emergency relief.

Protecting our customers' data

Our customers trust us to protect their privacy and keep their data secure, and we continue to work diligently to respect this trust. Our priority is to ensure we keep customers’ personal information safe and secure, and that we’re transparent in the way we manage this information.

We are committed to managing privacy risks as technology, and the way we use it, continues to evolve. We continue to implement privacy controls throughout our business and supply chain to improve the protection of our customers’ personal information. We have in place comprehensive security and network controls, business-wide policies and procedures, a network of business based privacy officers and mandatory training for all employees. Information on how we responded to privacy incidents during FY16 is available in the Customer experience chapter of our Bigger Picture 2016 Sustainability Report.

This year the Federal Government’s Data Retention Scheme came into effect, requiring Telstra and all other internet service providers to collect and store customer data for two years, and make it available upon lawful request. The Attorney General’s Department has given us until early 2017 to implement the scheme and we will be using this time to make sure we have the right protections in place.


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