Fleeing customers dent Telstra revenues

And it's no wonder customers are fleeing. Just ask almost any Telstra customer who has had problems with them

TELSTRA is unlikely to meet its current revenue forecasts, analysts have warned as they highlighted a decline in customer numbers as the company's biggest challenge.

Analysts and investors say declining customer revenue is a more significant threat to Telstra's long-term revenue than the proposed national broadband network. They are urging the company to cut retail prices to arrest customer attrition.

Telstra's cash flow was likely to be $400 million less than forecast this financial year, at $5.6 billion, a Goldman Sachs JBWere analyst, Christian Guerra, said in a research note.

His forecast is based on the decline in fixed-line customers and uncompetitive mobile and broadband plans. "The [first half of 2009-10 financial year] result highlighted some of the most concerning operating trends seen in Telstra's recent history," Mr Guerra said.

Its mobile phone plans were the least competitive, and its customer growth declined by 83,000 in the last six months last year. "Telstra's dilemma is clear. It does not want to lower its mobile pricing to accelerate the shift of high-margin traffic away from its fixed network and onto Australia's three mobile networks," Mr Guerra said.

Telstra's recent attempts to improve fixed and wireless broadband packages would slow customer attrition rates, but the prices were still uncompetitive, he added.

On December 18 Telstra warned sales revenue in 2009-10 would be lower than previously forecast because customers were leaving its fixed phone and broadband services faster than expected.

But the long-term trend was a more significant threat to Telstra's long-term profitability than the government's proposed broadband network, said a Perennial Growth partner, Richard Macdougall.

Institutional investors could expect Telstra's share price to weaken further if it does not make a deal with NBN Co, because that would add even more uncertainty to the company's future.

The government has threatened to forcibly split Telstra's retail network, divest its interest in Foxtel and deny it wireless spectrum if it does not migrate its fixed line traffic to the national broadband network.

Mr Guerra said a deal with the government was nearing and this could boost Telstra's share price.

Meanwhile, the Federal Court in Melbourne will hear a case this morning between Telstra and the Australian Competition and Consumer Commission on alleged breaches of the Trade Practices Act and Telecommunications Act.

The regulator alleges Telstra denied its competitors access to seven metropolitan exchanges to connect equipment to customer homes.

SOURCE