Title : Telstra shares slump amid profit warning and 'challenging conditions'
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Telstra shares slump amid profit warning and 'challenging conditions'
Telstra has warned investors to brace for a profit at the lower end of its guidance range, but remains committed to a 22-cent total dividend payment.
The announcement came as the telco reviewed its financial performance to the end of April, and ahead of a major speech by its chief executive Andrew Penn in Boston tomorrow.
Telstra has blamed "challenging trading conditions" for a pre-tax and interest profit that is now expected to come in at the bottom end of a previously stated $10.1-10.6 billion range.
However, despite growing subscriber numbers and data usage, Telstra said it was a victim of "competitive dynamics that have led to increasing pressure on both fixed and mobile margins".
In his speech to the JP Morgan TMT Equity Conference, Mr Penn will outline some of those "competitive dynamics".
In particular, Mr Penn will argue the Government's practical renationalisation of the last mile of fixed telecommunications infrastructure through the National Broadband Network is having a negative effect on earnings.
"This is having a very material impact on the economics of the whole industry and has triggered a step change in the competitive environment," he will say.
"In the last 12 months alone we have moved from three big players in mobile and fixed to a situation today where we face a fourth network operator entrant in mobile, an increasing number of MVNOs [mobile virtual network operators — basically companies that provide services through another telco's network] and more than 170 resellers of fixed."
Telstra shares fell more than 4 per cent to $3.07 in the first hour of trade following the ASX open, around the lowest levels in six-and-a-half years.
Telstra pursues cost cuts to help fund tech spend
However, Telstra has moved to reassure investors that not all its financial metrics were near the bottom end of targets, with revenue expected to be around the middle of the $27.6-29.5 billion range and free cash flow near the top, or even above, its $4.2-4.7 billion guidance.
The company said it was also continuing to aggressively cut costs, with "core fixed costs" expected to decline around 7 per cent this financial year, with about $300 million in restructuring costs.
While reducing fixed costs, Mr Penn will tell the US audience that Telstra is ramping up its capital spending on new technology, especially its 5G mobile rollout.
"In 2016, we announced that we would invest up to $3 billion of incremental capex to achieve a material step change in our strategic position in anticipation of these changes," he will say.
"Since then we have deployed about half about half of that capex in the networks of the future and digitising the business.
"In networks these investments are supporting our mobile differentiation, coverage, speed and resiliency."
Telstra has recently suffered two major service outages — one affecting thousands of its mobile customers, and another that knocked out the 000 emergency phone line for many people in the eastern states.
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