Telstra reverts to boring mode, until the 5G spark arrives

 brisbanetimes.com.au  2/15/2018 1:15:00 PM 

The widely telegraphed dividend cut is now official. And Telstra shares, which remain within striking distance of their lowest levels in five years, edged higher by a little bit.

For various reasons, Telstra has been trying to position itself as a "tech company" for a while now.

It launched a big marketing campaign to that effect, and rarely misses an opportunity to talk about the devices that can be used on its network, or how new technologies can be used to drive revenue growth, or to help it cut costs.

It's not alone in doing this, of course. There is an argument that every company is a tech company now, and Telstra and has much stronger credentials in the space than the pizza companies, oligopoly banks and consulting firms attempting similar chicanery.

At any rate, for Telstra, it's a lot more fun to talk about artificial intelligence and the internet of things, than the $3 billion-a-year hole in earnings the NBN has left the company with, or the intense competition that is driving down mobile returns.

The NBN has left Telstra with a $3 billion-a-year hole in earnings.

The NBN has left Telstra with a $3 billion-a-year hole in earnings.

Photo: Rob Homer

The messaging (which has inspired some derision among investors and in the media) got ahead of itself.

Telstra's CEO, Andy Penn, points out that much more fuss has been made over the first part of his vision for Telstra ("to be a world-class technology company") than the second ("that empowers people to connect").

Nonetheless, there were conspicuous references throughout Telstra's earnings presentations to the (genuinely) vast array of technologies its business and operations touch upon.

For example, Telstra pointed out that during the half it generated $200 million in revenue from the Internet of Things - cellular internet connections to devices that aren't phones.

Also, it's using an artificial intelligence powered bot to respond to customer queries (and ultimately cut costs). And it now has a team of 100 data scientists, doing something.

Yet in the eyes of its shareholders and the broader public, Telstra remains a big, lumbering telco, a generator of dividend payments that are less generous than they were a while ago.

And its most recent foray into tech - video streaming business Ooyala, ended in an embarrassing and costly write-down.

Despite the messaging and spin, the idea of Telstra truly joining the ranks of the tech elite was always fanciful, and the company's ambitions were always more modest than that.

Penn wants to harness the company's genuine tech and engineering strengths to sell big companies (and consumers) more lucrative services than just phone and internet connectivity.

It's a perfectly sensible approach. Yet Thursday's results demonstrated that connectivity is where the company's strengths lie now, and for the foreseeable future.

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That reality was reinforced by one of the glimmers of hope for the company amid a tough domestic mobile market and slow moving NBN train wreck: the relatively imminent dawn of "5G" in mobiles.

Penn points out that following the launch of each new generation of mobile technology (from 1G to 2G, 2G to 3G, and so forth) mobile industry revenue has expanded. Telstra will be desperately hoping that history repeats itself with 5G.

Although this time, unlike the preceding two generations of mobile technology, it won't have the arrival of one of history's most popular consumer products (the iPhone) to ride on the back of.

In any case, the posturing over the next generation of mobile technology has already begun. Optus and Telstra both recently rushed out announcements that they would launch 5G services in 2019, despite the standards for the protocol still being worked out. 

It's still very early days, so no one really knows what the impact of 5G will be, or how it will affect consumers. At a minimum, it seems a safe bet that it will be used to connect more everyday devices to the internet.

Telstra will want to grab the lion's share of those.

So despite the lofty rhetoric, it seems likely that Telstra's business will, for the foreseeable future, be about selling relatively boring telecommunications contracts.

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