“The margins today on the NBN reseller business for us is zero....

“The margins today on the NBN reseller business for us is zero. We are 55 per cent of the way through the rollout of the NBN so we still have the benefit of the margins from our existing business from Telstra; once the rollout is complete our margins on that (fixed) business will be zero.”

The NBN has rolled out across 55% of the country and Andrew Penn has still not figured out how to make a profit on it. Although there have been some re-sellers go out of business, I am highly skeptical that all operators are running a margin of zero. This performance alone is shocking, this is not a legacy operation bloated by years of inefficiencies. It is not NBNs role to pump the margins of TLS, clearly management has to bring the cost down on this segment rapidly or accept that NBN is a white elephant and prepare to go around it.

Penn has been building a massive uneconomical fixed broadband segment that is essentially one giant asset black hole from which earnings simply do not escape. He is not only content to do this but it is his "strategic intent " under T22 to do this even though there is zero economic surplus from doing so. This release that NBN margins are zero provides additional incentive to go around it because the economics are very simple in the longer term. Customer migration from a high cost fixed infrastructure network increases the proportion of fixed cost on those customers that remain which then drives up disconnections and so the inevitable feedback loop is established that kills the value of an NBN connection and punishes those companies that build a strategic direction delivering these connections.

The pressure exerted by the NBN on Telstra has forced it to restructure the entire fixed business, starting with the decision in 2017 to cut the total dividend payout from 31c to 22c.In total Telstra declared an interim dividend of 8c, comprising an ordinary dividend of 5c and a special dividend of 3c, which represents Telstra’s NBN payments. The one-off NBN subscriber payments will end in 2021 and have been used to fund special dividends in recent years.

I am simply no longer able to accept that TLS current position is due solely to the government and the NBN, TLS had incumbent status. It had all the billing and delivery systems in place and the symmetries these afford yet it seems to be getting completely owned by other competitors (including brand new operators) operating on the NBN. Where did the bloated cost structure come from in just the last seven years?

The biggest problem I have with cutting dividends again (what am I talking about they are essentially floating these days) is that Telstra have a long history of burning retained earnings on venture prospects that simply do not deliver. Telstra does not deserve to keep excessive earnings because management have destroyed so much value in the past trying to become the next Google or Netflix.

I am still committed to the company and confident of its medium term prospects but it would be really great if the shareholders would blast this guy out of the company and replace him with someone that can actually do a half decent job.

Telstra dividend down as high NBN prices bite.pdf

And the good news is that MWC is this month and hopefully we all get to see a stunning array of new 5G portable electronic devices for the 5G network 

https://www.mwcbarcelona.com/