LTE: Telstra cost-cutter, Optus cash river

Telstra CEO David Thodey has revealed that the company's plans to launch long-term evolution (LTE) broadband devices later this month are aimed at reducing the cost of transporting data on Telstra's network, while Optus says it sees LTE as a new source of revenue.

(Credit: Telstra)

At the end of this month, Telstra plans to begin commercial services for its LTE network in the CBDs of Sydney, Melbourne and Brisbane for business customers. In addition to offering customers faster speeds than that of 3G, with Telstra obtaining around 80Mbps in a field trial last year, LTE also offers four times the spectral efficiency of traditional 3G technology. At a journalist conference call for Telstra's full-year financial results, Thodey admitted that this efficiency was key to Telstra jumping on the technology.

"The cost per bit is significantly lower on an LTE network as opposed to a HSPA+ network. So it's all about the efficiency of carrying data on the network. LTE is just a far more efficient technology in terms of the cost base. And remember, for us to be able to maintain margins in that market, we really need to be driving down costs on the network," he said.

Thodey said that moving traffic from the Next G network to LTE would give Telstra "some options going forward". Thodey's counterpart at Optus, Paul O'Sullivan, today told journalists that he wasn't surprised that Telstra would use it to offload traffic from Next G, but said that Optus would still hold off launching its own LTE network until there were a significant amount of devices and demand for it.

"We're not keen to get out too early because at that stage it's difficult to monetise," he said.

O'Sullivan said that telcos in Australia should look to develop LTE as "premium service" for mobile customers in order to secure extra revenue.

"LTE will allow us to bring very high-speed broadband to most Australian customers. As an industry, I believe we should look to find a way in which to sell that as a premium service, something which customers get value out of and which they're willing to pay and in the process therefore make the industry all the more sustainable and therefore able to keep investing in new technologies," he said.

Telstra, however, still sees its Next G network as a "premium service". In the last financial year, Telstra added 1.66 million new mobile customers, fuelled in part by lower prices for smartphone plans and well publicised network issues for its rivals, in particular Vodafone. While cutting prices was definitely a factor in attracting new customers, Thodey said that because Telstra had what he believed to be a superior network in Next G, the telco "deserves a premium" over its competitors, and would resist engaging in an all-out price war with Optus and Vodafone.

"I think we'll continue to be very focused on why people come to us, which is the coverage of the network, the strength of the network, [the speeds]," he said. "We've always said we wanted to have competitive offerings in the market. We didn't say we would be the cheapest, but we would have competitive offerings."

"The reality is that price is interesting, but you want to get a good service if you spend any money."

Thodey said that customer money is shifting towards smartphones on post-paid plans, with 47 per cent of the new 1.66 million customers signing up for a smartphone device. Meanwhile, the company lost a total of 15,000 prepaid customers. Similarly, Optus added 113,000 post-paid customers in the first quarter of 2011, but lost 85,000 prepaid customers. According to O'Sullivan, almost all of the customers that Optus added were using smartphones.

"If I look at post-paid sales today, 90 per cent of our sales are on smartphones and, of those, we're starting to see a growing penetration of Android, which is somewhere between a quarter and a third of our sales at the moment. It's good to see, in addition to the very successful and very good Apple products, we're getting some diversity out there with other operating systems."

Labor vs. Liberal broadband policy

Thodey would not be drawn on whether Telstra had examined the Coalition policy outlined by Malcolm Turnbull at the National Press Club last week, as the party was not in power.

"When and if he's in power, we'll have to look at it," he said. "I can only deal with the reality I have in front of me, and I don't have any options. As much as the shadow minister may have options, they're not really relevant to me until they're in power and the law has passed."

Thodey predicted that any future Coalition government that attempted to change NBN legislation enacted by the Labor Government would face a hostile Senate, with the Greens holding the balance of power.

"Currently, the NBN and also the legislative environment is law. Even should there be a change of government, it would have to go through the Senate for a fundamental change, which would have to be approved by the Senate, and you know the Senate structure with the Greens," he said.

"That means that while there are options, should there be a change of government in two years' time, an actual change in legislation would be quite a lot longer further forward."

O'Sullivan said that Optus would work with the government of the day, either Labor or Liberal.

"We take the view that we will work with whatever government is elected, and we think it is quite legitimate that Australia is having a healthy debate over the variety of ways broadband can be rolled out," he said.

"But a key issue that is very pleasing to us is that both parties have clearly adopted the same approach in terms of structural separation and reform of the sector, and that's really reflecting a realisation that if you want to drive the benefits of high-speed broadband technology to all Australians ... you've got to have a proper competitive market."

The Australian Competition and Consumer Commission (ACCC) has yet to sign off on Telstra's structural separation undertaking, which is meant to occur before the finalisation of the $11 billion deal with NBN Co and the government.

Thodey said that the company still hopes to get shareholders to vote on the deal at the company's annual general meeting on 18 October.

"We're keeping that option open as long as we can, and it really depends on how far the ACCC has gone with that process," he said. "The board will look at that as we go through it in the next few weeks."

If the ACCC hasn't progressed with its decision, Thodey indicated that he may seek to call an extraordinary general meeting after this date.