Opinion
Telstra must get pricing pain right to prevent a customer revolt
Elizabeth Knight
Business columnistRaising money from its wealthier customers and keeping a pricing lid on mobile phone plans for struggling customers is behind Telstra’s selective revenue grab.
It’s clear recognition that within the Telstra customer orbit, there are those on whom it can inflict no additional pricing pain, and there are those who are reasonably immune to higher communications bills.
Telstra lifts prices.Credit: Oscar Colman
The corporate objective will be to raise as much as possible without prompting churn to another carrier.
And it is Telstra’s competitors, Optus and Vodafone, that gave it the license to raise prices; they paved the way over recent months by bumping up the cost of their plans.
Vodafone raised prices on its mobile plans by 6 to 9 per cent at the start of the year, while Optus pushed up prices for new customers by 5 to 6 per cent in May.
This is a revenue lever that Telstra can pull to safeguard profits. It has already announced a cost reduction drive – but more on that later.
Customers should also bear in mind that inflation has impacted Telstra’s own cost base, so this revenue-raising exercise is prudent enough.
In May, Telstra made a cryptic announcement on pricing when it said it would abandon the annual inflation-linked July adjustment without signalling how it would deal with pricing in the future.
Those customers who heaved a collective sigh of relief that Telstra’s prices didn’t move in July, and for the optimists who may have been lulled into thinking they may escape a rise this year, the new pricing announced on Tuesday will come as a disappointment.
Changes will kick in for post-paid customers in August and pre-paid patrons will feel them in October.
Realistically, Telstra was always going to re-price this year, so customers should have been waiting for that shoe to drop.
Telstra chief Vicki Brady this year announced a 10 per cent cut to the telco’s workforce. Credit: Ben Symons
However, the previous pricing policy of linking all price changes to the inflation rate was a particularly blunt marketing tool.
The new-found pricing flexibility makes sense – enabling some plans, like the bottom-of-the-pile prepaid starter, to remain the same, while increasing many customer plans by 4 to 5 per cent. Some longer-term plans have been the hardest hit with increases of up to 12 per cent.
This compares with inflation of about 4 per cent over the past year.
Customers should also bear in mind that inflation has impacted Telstra’s own cost base, so this revenue-raising exercise is prudent enough.
It comes on the heels of Telstra’s chief executive, Vicki Brady, announcing a 10 per cent cut to its workforce as she strives to cut costs to make good on previous profit guidance given to shareholders.
While the mobile division continues to power along, thanks to better network coverage and plenty of rusted-on customers, other business units such as its huge enterprise unit, which provides communications and technology services to corporations and governments, contribute almost a third of the company’s group income.
It has been trying to staunch falling profits in the enterprise business for more than a year as a result of it becoming increasingly vulnerable to businesses moving to internet-based services provided by software companies rather than using traditional voice calls.
It is in this division that most of the redundancies will be made.
For Telstra shareholders who have not felt much joy this year as the price of their shares fell about 5.5 per cent, the pricing announcement brought some relief.
Its shares rose more than 3 per cent by early afternoon – firmly outpacing the ASX 200, which rose by 0.7 per cent.
In Telstra’s May announcement, it lifted guidance for the 2025 financial year. Increasing the prices of mobile phone plans is the tonic Telstra needs to make good on profit promises.
Brady really needs to nail this guidance.
Read more:
- Elizabeth Knight: Why Telstra needs to sack 10 per cent of its workforce
- David Swan: Will customers stomach higher prices from Telstra?
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