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Telstra’s Mobile Business Losing Ground To Optus

Several analysts – from UBS, Citi and Macquarie – have expressed concern Telstra’s mobile business is losing ground to Optus. For the six months to December 31st, Optus signed up 202,000 postpaid customers, whilst Telstra nabbed 130,000.

In a client note released yesterday, UBS telco and media analyst Eric Choi, warns margins and average revenue/per customer [post-paid] are on a downward trend.

Concerning Telstra’a mobile business, Mr Choi forecasts further EBITDA declines into 2H18:

“Mobile earnings before interest, tax, depreciation and amortisation declined by 1 per cent year-on-year in the first half of 2018, and we see the potential for ­mobile EBITDA declines to ­accelerate in 2H18″.

UBS estimates Telstra’s mobile EBITDA will drop by around 6% in 2H18.

“We see mobile earnings growth worsening in the second half of 2018, on a free cash flow basis. However, given a spike in mobile (spectrum and network) capital expenditure, we think ­mobile has peaked”, states Mr Choi.

For the six months to December 31st, Telstra’s mobile revenue remained relatively flat – climbing 0.8% – to $5.1 billion.

According to The Australian, both Citi and Macquarie analysts hold an equally downcast short-term outlook for Telstra’s mobile business, remarking that Optus is gaining ground.

Analysts from Macquarie expect Optus’ mobile business momentum to continue:

“Optus has momentum in ­mobile, and we expect it will continue to press hard given recent investment in network and media investment (it has FIFA World Cup digital rights mid-year, and one more season of EPL),” Macquarie analysts said.

“Competition picked up in the December quarter, with significant promotional activity by all three operators. The timing of this activity suggests ARPU ­(average revenue per customer) pressures will continue into the second half”.

Speaking to clients, Citi’s David Kaynes warns Telstra may have to cut its total dividend in the next three years:

“Margins fell from 42% to 40% and expect this to only deteriorate”

“Earnings per share growth continues to be in ongoing ­decline, competition ramping up and no strategy to amend this”.

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