Telstra promises to cut prices to keep customers

By Ry Crozier on Aug 12, 2010 11:39 AM
Filed under Finance

New growth strategy unleashed.

Telstra has sounded a warning to ISPs nationally that it will compete with them "fairly but very aggressively" to retain and grow its own retail customer base and arrest declines in sales revenue.

The telco was the subject of complaints from several ISPs earlier this month - including Internode and iiNet - over its pricing conduct on fixed broadband internet services.

ISPs have claimed that Telstra had made large cuts to its retail prices without equivalent adjustments to wholesale rates, leaving them unable to compete on price on resold Telstra ports - and facing the prospect of losing their customers on Telstra ports to the incumbent.

In late July, Telstra launched a 200 GB broadband plan priced up to $100 a month less than the price rivals could offer on the same infrastructure.

Telstra chief David Thodey said today that the price revisions seen across its product lines in the past six months would continue.

"We will do what is necessary to acquire and retain the best customers," Thodey said.

"This is about competing and we are going to sell more aggressively.

"We must hold our customer base and increase it. We're doing this for future growth."

Telstra said today that sales revenue declined 2.2 percent or $558 million for the full year ended 30 June 2010. Adjusted for "the sale of KAZ, currency movements and CSL New World impairment", sales revenue was down 0.2 percent.

"We have been losing too many customers and we cannot allow it," Thodey said.

"In fact, I'm not going to allow it to continue.

"We're going to bite the bullet and invest for longer term growth. We've decided we must invest to maintain and acquire customers and to grow the business. We cannot continue to lose market share."

Chief financial officer John Stanhope said he did not expect rival ISPs to take margin pressures and increased competition from Telstra lying down.

"We don't expect the competition to say, 'Go ahead, that's fine'," Stanhope said.

"There will be more price pressure. But [our strategy] is about stemming the loss [of customers from Telstra] and winning some [more market] share."

Already Internode has responded with aggressive price cuts on its Agile DSLAM infrastructure and iiNet has flagged a pending announcement of its own "within one to two months."

Consumer business

Chief financial officer John Stanhope said that public switched telephone network (PSTN) revenues continued to slide but that fixed broadband margins had improved, partially due to economies of scale.

He said that Telstra's consumer sales revenue declined 0.5 percent but that "new bundles and pricing were addressing this performance".

Stanhope said about 300,000 customers had signed up for Telstra's recent bundle offers and that the consumer business had "returned to growth in the second half".

Thodey predicted the consumer business performance would continue to be "tough".

"It's a challenging market with such strong price movements," Thodey said.

"We're seeing enormous price movements in fixed broadband, mobile... and we need to continue to be competitive."

Telstra also announced today it would make its contact centres 24/7 from September 14, as the telco continued to focus efforts on improving customer service.

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