Telstra blames regulated fee cuts for 14 percent profit drop

Telstra has posted drops in both its total income and net profit for its most recent fiscal half year, pinning the blame on the ACCC's decision to cut mobile call and SMS termination rates early last year.

Rivals Optus and Vodafone have also claimed heavy financial hits from the decision in past quarters.

Telstra today revealed a first-half FY2017 total income of $13.7 billion, a drop of almost 1 percent, and net profit of $1.8 billion, a 14 percent fall.

It said the ACCC's decision to reduce termination rates for calls from 3.6 cents per minute to 1.7 cents, and from 7.5 cents to 0.03 cents for SMS, had cost it $400 million in the six months to December last year.

Similarly, an ACCC-mandated reduction in backhaul prices last year also cut $38 million from Telstra's results, the telco said.

Excluding these two items, Telstra said its total income would have increased by over 2 percent in the period.

Additionally, restructuring costs of $165 million in the half dragged down net profit, as did faster amortisation of business software.

The telco's net promoter score was eight points lower than the same time last year as a result of a series of damaging network outages Telstra experienced in the first half of 2016. CEO Andrew Penn said he expected the NPS would recover as the telco progressed on its $3 billion network and systems overhaul.

The telco added 200,000 new domestic retail mobile customers, as well as 90,000 retail fixed-line customers, and 292,000 new NBN connections over the six months to reach 792,000 NBN connections, and a 51 percent market share.

Revenue from its mobile business fell almost 9 percent to $5 billion thanks to the termination rate fee cut, paired with lower hardware sales resulting from the increasing popularity of bring-your-own-device plans.

Revenue from its fixed operations also dropped, down almost 5 percent to $3.3 billion predominantly due to a 9.4 percent fall in fixed voice revenue; fixed data revenue grew almost 2 percent to $1.3 billion.

NAS revenue jumped 18 percent to $1.5 billion thanks to growth in cloud services and industry solutions like NBN commercial works, while its machine-to-machine business posted 13 percent revenue growth and 130,000 new M2M services in the half.

The telco said its full-year income would likely reveal mid to high-single digit growth.

“First half income growth was impacted by lower hardware revenue. Given this, we expect that full year FY17 income growth will be at the bottom end of our mid to high-single digit range," Penn said in a statement.

"In the second half of FY17, the MTAS  [mobile termination access rate] impacts in the first half will drop out of the comparison so the full year effect will be smaller, and the NBN rollout is expected to accelerate in accordance with the NBN corporate plan."