Telstra says competition in the telecommunications sector remains tough and concedes it will probably lose customers to smaller rival TPG Telecom when the market newcomer establishes its own mobile phone network.
Telstra chairman John Mullen says TPG is “a formidable operator”, and Telstra is not underestimating its impact on pricing and competition.
But, speaking at Telstra’s annual general meeting on Tuesday, Mr Mullen said Telstra will continue to invest in its mobile network to ensure that it remains superior.
Mr Mullen told shareholders that TPG is likely to chase customers at the price-sensitive lower end of the market.
“They will go for low-hanging fruit, which means that they will probably go for the large cities to start with – they’re a low-priced offering, so it will be a very different offering to Telstra,” Mr Mullen said.
“We do not intend to chase that down, we intend to promote the benefits of our network and the investment we make in superior service.
“But we have to be realistic: there will be people who will change for a large price discount.”
Mr Mullen said that for that reason Telstra had spent a lot of time on planning last month’s launch of Belong Mobile, which will offer broadband and mobile services at a cost structure and similar network coverage to what TPG offers.
“We believe with that we can bifurcate the market: we will stay and run the ship in the main premium end of the market, which is where we belong, but we will have the means to fight down below in that maybe 15 to 20 per cent of the market which will be very price-sensitive,” he said.
Telstra chief executive Andrew Penn told shareholders that the operating environment for telcos is challenging, with increased competition, digital disruption and the migration to NBN to be dealt with over the next two to three years.
Both Mr Mullen and Mr Penn said it was for those reasons that Telstra had decided to change its dividend policy, a decision which cost the board “many sleepless nights” because they realised it would be tough on shareholders.
One shareholder told the meeting that dividends were important because he gave all his dividends to poor people.
However shareholder questions on other issues outnumbered inquiries about the dividend policy.
Shareholder concerns voiced at the Melbourne meeting covered topics including how long it takes to pay a Telstra bill, why one regional customer can’t get mobile coverage unless they “stood by the chook shed”, why Telstra call centre staff have accents that are hard to understand, and what would happen to driverless cars in a telecommunications black spot.
Telstra has confirmed its guidance for 2017/18, saying it expects income in the range of $28.3 billion to $30.2 billion and EBITDA (earnings before interest, tax, depreciation and amortisation of $10.7 billion to $11.2 billion.
Telstra shares ended Tuesday steady at $3.55.