Telstra: Fixed Line Is Broke – Lets Go New

Something is rotten in the Telstra basket – fixed line phones. And how badly it has gone off it will be fully revealed this week.In accordance with earnings guidance issued last September, the Telco’s profits before interest, tax, depreciation, amortisation (EBITDA) looked set to fall by “high single digit percentage” this year, with a free cash flow guidance of between $4.5 billion to $5 billion.

However, this original downgrade now looks set to free fall into low double digit territory, according to analysts at Deutche Bank who predicts Telstra profits for second half of last year will be $4.7bn – a  12.5 per cent drop. 

This massive fall is partly due to its declining phone line business, which thanks to massive mobile and broadband uptake has meant consumers are phoning less over traditional home lines.  

Despite disappointing fixed line business, mobile and internet divisions are booming with Telstra winning back previous losses to Optus and Vodafone, says Deutsche Bank analyst Andrew Anagnostellis. 

“Mobile is looking good for Telstra and it should look good because they have sunk a lot of money into it. That’s important because part of Telstra’s $1bn strategy was to get out there and grow market share. And they look like they have achieved that to some extent,” he told The Australian.

Revenues also look set to fall 0.7 per cent to $12.2bn. 

However, many analysts are keen to find out if their ‘Project New’, its  $1 billion bid to improve customer service and lure clients back into the Telstra fold will pay dividends, given its massive cost.

“Telstra has lost customers over the past year and in response to the erosion of our customer base we saw two strategic options,” the company said last year. 

“We could focus on maximising cash in the short-term, cut costs and continue to lose market share, or take a long-term view by investing in customer service, simplifying the business and competing effectively to retain and acquire customers.” 

Analysts also predict the Telco will again declare a fully franked interim dividend of 14c per share, in line with management objectives of a 28c dividend over a two year interm.

However, thats not all going on at the communications house.

This week may see the Telco finally confirm its $11 billion deal with
the NBN, according to the Australian Financial Review. 

The
Telco, due to announce its half year financial results this week, may
also outline its honourable intentions with the National Broadband
network, which needs its shareholder approval before it can get the go
ahead. 

Chiefs from both NBN and Telstra, Mike Quigley and David
Thodey were reported to have held a productive meeting last week
helping to finalise details of the selloff of the Telco’s copper fibre
network in return for broadband contracts and a large pay out.
           
Telstra,
who are to present shareholders with the NBN deal for approval this
June, are at risk of delaying the deal as bureaucracy gets in the way, analysts at
Goldman Sachs warned last week.