Analysts say Telstra’s cost-cutting likely to flow through to the customer

by Admin
May 22, 2024

Telstra’s decision to scrap thousands of jobs and ditch its key current pricing model could see the price of its services go up, analysts say.

Chief executive Vicki Brady announced a ‘reset’ of the business on Tuesday, and revealed 2,800 jobs would go as a result of Telstra pivoting away from declining revenue streams in its fixed enterprise business, and restructuring the way it prices its products.

Ms Brady said the redundancies would take place before the end of the year, and allow Telstra to streamline its sale and service model, cut the cost base of its tech services and reduce its network applications.

She said the job cuts would not impact customer service, and the business would aim to be ‘transparent’ about its new pricing model plans moving forward.

Telstra chief Vicki Brady says ongoing “inflationary and cost pressures” is forcing the telecommunications giant to cut jobs.

Pricing flexibility could go either way

Telstra has previously attracted criticism for linking annual price increases with the Consumer Price Index (CPI), which could allow for increases to postpaid mobile services due to inflation.

The next CPI-linked price rise was due to happened on July 1, and has been cancelled.

Ms Brady said the decision to scrap the business model was made to offer Telstra ‘greater flexibility’ to change prices depending on their value and customer needs.

“This is occurring within a dynamic environment, with an evolving competitive landscape, rapid advances in technology, changing customer needs, and the ongoing inflationary pressures facing all businesses,” she said.

One analyst who was not able to speak publicly told the ABC while the transparency from Telstra was welcome, customers should not automatically expect price cuts.

“Linking mobile prices to CPI did not make much sense as it did not consider many other factors such as competition, peer pricing, capital investment, and market position,” he said.

“Telstra will need to keep increasing mobile subscriptions or raising prices to keep growing profitability given the rest of the businesses are now such small contributors.

“The change to mobile has some questioning whether the company will put prices up this year, especially given its [competitors] have not done much.”

The flexibility will allow Telstra to increase, decrease or keep prices the same on some of its products.

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It would mean the company could now charge above inflation prices if needed.

In a statement posted to its website, Telstra said some prices would change in the future.

“As a business, we’re constantly striving to balance the needs of our customers whilst ensuring we remain financially sustainable,” the statement said.

“The price changes also mean we can keep investing in our network, products and services while responding to increased data usage.”

Telstra has already flagged $4 and $5 a month increases to two of its lowest priced NBN products.

It has cut the cost of its two premium NBN plans.

Share price drop ‘expected’

The decision to scrap the price model has also had an impact on Telstra’s share price.

On Tuesday, the share price opened at $3.68.

By the afternoon, it had dropped by 2.72 per cent to close at $3.59.

UBS equity research analyst Lucy Huang said despite cost-cutting measures that would have been welcomed by the market, Telstra’s decision on its price model would impact the telco’s bottom line in the short term.

“Most likely yes [Telstra expected a share drop] given the market had been expecting a rough three per cent-plus post-paid price increase to come into effect in July,” she said.

“Telstra has mentioned removing CPI indexation gives them more flexibility, so the market will be watching whether there will be future announcements made around price increases for the 2025 financial year.”

Lucy Huang says the market will closely monitor Telstra for news of price increases for the next financial year.(ABC News: Daniel Irvine)

ACCC to watch closely

Treasurer Jim Chalmers told reporters on Tuesday the federal government would contact the Australian Competition and Consumer Commission (ACCC) to monitor Telstra’s pivot.

“We need to make sure that the services don’t suffer as a consequence of these changes, and we will be seeking advice from the ACCC about some of the claims that Telstra is making about their new pricing strategy and the role of the NBN,” he said.

An ACCC spokeswoman said the authority would watch any changes to NBN pricing and other products closely.

“The ACCC is aware of the treasurer’s comments regarding [Tuesday’s] announcement by Telstra on pending changes to the price of some of its NBN offers,” she said.

“The ACCC continues to monitor NBN retailers to ensure they are meeting their obligations under Australia’s consumer and competition laws when communicating retail price changes to consumers.

“If households are impacted by cost of living pressures, we recommend that they seek support from their retailer or shop around for any offers that represent better value for them.”