Telstra lays foundation for continued profitability

David Kennedy, Ovum research director

AUSTRALIA: In essence, Telstra has successfully converted its market share gains of the last eighteen months into improved profitability. It has done this partly through improved economies of scale and partly through tighter cost control.

Importantly, it seems to have made these share gains permanent (as permanent as they can be in a competitive industry). To illustrate, Telstra has reported record mobile net adds this half (1H12) coupled with lower subsidies and lower churn year-on-year. This customer growth even outstripped the net adds of a year ago, when Telstra spent heavily on subsidies to win market share. This is a testament to Telstra’s network quality, reliability and coverage remaining a key distinguishing factor for the carrier.

Telstra’s short-term strategy is to wind back its device subsidy program, keeping its new customers on board with long term contracts, strong network performance, and improved customer service. Customer service improvement through business simplification is particularly important to this strategy, because it reduces the cost of serving customers and it reduces churn.

In the longer term, Telstra’s continued profitability will depend on incremental revenue growth through adding new services such as M2M and networked application services, permanent churn reduction, and ongoing cost-base reduction.