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Days After Mobile Boss Dumped, Analysts Call For More Network Spending By Telstra

Telstra

Days after we exclusively revealed that Telstra had dumped their head of mobile, Andrew Vollard, analysts have come out and said that the Company needs to spend more money on their network, if they are to compete up against the proposed new mobile network set to be rolled out by TPG.

UBS claim that the proposed TPG mobile network will introduce competitive pressures that may force the incumbent to increase spending to retain its core mobile customer base. It’s also been revealed that both Vodafone and Optus are gaining ground on Telstra in the mobile market.

USB has also claimed that the cost of attaching to a carrier network will fall for consumers in the future.

USB analyst Eric Choi said, “We think Telstra should earmark a portion of excess free cash flows (including potential proceeds from any NBN receipt securitisation) to protect the [mobile] core,” in a note to clients.
He added “We think the market is underestimating the potential for investments in the ‘core’ to feature prominently in Telstra’s upcoming Capital Allocation Review.”

The UBS team conducted an online survey of nearly 2000 mobile users in five capital cities and found TPG’s expected prices were very attractive, but consumers wanted proof of network quality. TPG planned to reach 80 per cent of Australians through a network built for $600 million.

The same survey found just 13 per cent of Telstra’s customers were likely to become TPG customers out of concerns about the network’s geographic coverage. But more than 20 per cent of Optus and Vodafone customers would consider giving TPG a chance.

However, an increasing number of Telstra and Optus customers were willing to change networks in 2017 compared with the 2015 and 2016 surveys, while the number of Vodafone customers looking for a change had decreased from 33 per cent in 2015 to 29 per cent in 2017.

“Are Optus and Vodafone gaining ground on Telstra?” the analysts ask.

“Yes. We think so. Our survey results were particularly positive for Vodafone … [but] relatively neutral for Optus.”
While Telstra has managed to keep customers on high price points in the past, the launch of cut-price telco TPG’s mobile network in two to three years’ time means “the average retail price of mobile data across the industry [is] about to come down substantially”.

This will be an immediate threat to Vodafone and Optus, but will make it increasingly harder for Telstra to charge a premium in the longer term.

Customer perceptions were down for Telstra’s network coverage and customer service, but were steady on value for money and network reliability.
Telstra shares closed at $4.30 on Friday, a 1.6 per cent decline on the previous day.

Currently earnings from Australian mobile networks in Australia are $7.6 billion, Australia’s mobile market is worth twice as much as the fixed market, according to UBS. Telstra has 17.4 million mobile customers, Optus 9.72 million and Vodafone 5.56 million.

However, Vodafone and Optus’ net promoter scores [NPS] sat above Telstra’s score of +14, at +20 and +17 respectively. NPS are used to measure how popular or “recommendable” a product is. Vodafone’s NPS was -6 in 2015.

This week the ACCC will host a two-day market study forum with more than 100 people from the telecommunications industry in Sydney this week.

Australian Competition and Consumer Commission Chairman Rod Sims says there is likely to be debates about pricing on the national broadband network, net neutrality, barriers to entry and general competition issues.

Previous forums involving the motor vehicle and dairy industries had alerted the ACCC to problems that it wasn’t aware of, Mr Sims told Fairfax Media.

“This is a really important event [with], I think, profound implications for where the telco market is going,” he added.

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