Drive value and growth from the core

Telstra’s networks continue to be among the best in the world and provide us real strategic differentiation. Our recent announcement that we will invest up to an extra $3 billion over three years on new investments in networks and business initiatives is designed to help us continue to maintain strategic advantage in a heavily competitive environment. The new investments will go towards transforming the next generation of network architecture, with a focus on the next stage of mobile network innovation including preparation for 5G, as well as strategic investments in our fixed network services.

Notwithstanding the interruptions we experienced in the second half of the financial year, in FY16 we made progress on network innovation and overall, we invested $4 billion in capital expenditure, including investment in our fixed and mobile networks and other works.

We are increasing mobile coverage

With the nation’s largest mobile footprint and as the first carrier to bring 4G mobile services to regional Australia, we are acutely aware of the challenges facing communities living with limited mobile network access. Our mobile network remains the largest and most reliable mobile network in Australia and now covers over 2.4 million square kilometres and 99.3 per cent of the Australian population. Our 4G network now covers 98 per cent of the Australian population and we are on track to reach 99 per cent of the population by June 2017.

Under the Federal Government’s Mobile Black Spot Programme, we are deploying 429 new 3G/4G base stations to improve mobile coverage for over 400 communities across Australia and of these, we have already delivered sites providing new and improved mobile coverage to approximately 50 communities.

We are preparing our network for the future

We have taken significant steps to prepare our networks for the future, to meet the rising demand for data and content on our networks.

LTE Broadcast (LTE-B)

As growth of video consumption continues to accelerate on our mobile network, LTE-B technology can allow large groups of customers to consume the same content in the same location at the same time, such as software downloads or sports content.

In FY16, we enabled the capability to switch on LTE Broadcast technology across our entire 4GX^TM coverage area giving us a platform to cost effectively broadcast high quality video media to a number of metropolitan and regional areas around Australia.

VoLTE

In September, we launched Australia’s first Voice over LTE (VoLTE) service that allows voice calls to be carried on the 4G service for the first time. Benefits include call setup times speeds and the ability to serve new coverage areas more cost effectively with 4G alone rather than having to include 3G infrastructure for voice.

1Gbps

In late 2015, we completed a world first commercial launch of a device capable of 600Mbps peak download speeds and the successful demonstration of a device with 1Gbps download capabilities on a commercial network. Our mobile network has now been enabled to support 1Gbps peak download speeds in Melbourne, Sydney and Brisbane CBD areas in readiness for commercial devices which we expect to become available later in 2016.

We continued to grow customer numbers in our core mobiles and fixed broadband business in 2016, leveraging the work we are doing to build customer advocacy as well as our core network strength. Our focus remains on enhancing the customer experience, with our mobile offerings including more content and larger data allowances than ever before. Appetite for data continues to rise, with the volume of data usage across our networks up 62 per cent from the previous year.

In a highly competitive environment, retail mobile customer services increased by 560,000, bringing the total number of services to 17.2 million. Mobile revenue decreased largely as a result of regulatory changes to voice and SMS terminating charges, and lower international roaming charges. However without the negative impact of the regulatory changes, on a like-for-like basis, mobile revenue was higher.

Fixed revenue fell largely due to a continued decline in the number of fixed voice services and regulatory changes. The rate of fixed voice revenue decline was broadly maintained due to success in retention activities and momentum from bundling. The total number of customers on bundled plans increased by 322,000, with 83 per cent of our retail customer base now on a bundled plan.

Fixed data continues to grow strongly, partially offsetting the decline in voice. Retail subscriber numbers increased by 235,000 for the year, the highest net adds in over five years, bringing the total retail fixed data services customer number to 3.4 million. Demand for our nbn^TM services continues, with connections growing by 289,000 to 500,000.

Telstra is Australia’s leading provider of services on the nbn™ network with a market share of 50 per cent and we are seeing strong momentum as the rollout gathers pace.

The multi-technology model (MTM) for the nbn™ network is now in effect, scaling up the rollout of the nbn™ network across the country with the launch of new access technologies, fibre-to-the-basement (FTTB) and fibre-to-the-node (FTTN).

As at 30 June 2016, we had 500,000 nbn™ network connections, made up of 407,000 voice and data bundles, 34,000 data only and 59,000 voice only services. Our customers on the nbn™ network are embracing access to high speeds and we are seeing a rise in data use as our customers take advantage of exclusive content through our media and sports partnerships and leading on-demand video technologies like the Telstra TV®. For our business customers we are creating industry solutions, managed network services, cloud and collaboration services to take advantage of the improved network experience available with the nbn™ network.

In the first areas to launch FTTN technology on the nbn™ network we deployed a local leadership strategy to drive high demand and awareness and educate and help our customers take advantage of the new technology. We have more to do to improve our customers’ experience as they transition to the nbn™ network, and this will continue to be a key focus as the rollout continues.

Belong®

Our challenger internet brand Belong has continued to offer competitively priced broadband plans. Throughout FY16, the low cost data-focused offering and hassle free approach of Belong has seen it secure more than 250 per cent growth in the nbn™ network consumer market helping new broadband customers get connected.

We won new nbn co construction contracts

In April, we signed a new $1.6 billion contract with nbn co to provide planning, design, construction and construction management services within our existing HFC footprint, which is a testament to our world class expertise in network construction. The works are due to continue until the end of the nbn™ network build, which is expected to be in 2020.

Our HFC network is currently used to deliver pay TV and cable broadband services. Once upgraded, it will be an important part of the nbn™ network, delivering nbn™ broadband capability to millions of homes and businesses.

Productivity remains a key focus for us in driving value from the core. Our productivity work is designed to deliver better customer outcomes by simplifying our processes and systems and optimising our products and services so we give our customers simple, clear choices and reduce the amount of work we need to do in the background.

We have made good progress in removing complexities and moving toward digital solutions in FY16.

• We expanded the range of Self Service Assurance tools from ADSL to include Cable and PSTN products and in FY16, 1.2 million Self Care online interactions were completed, compared to 600,000 in FY15. We estimate this reduced customer calls by 3.5 per cent.
• We introduced a number of back-of-house and customer management initiatives to improve our efficiencies in moving customers to the nbn™ network, leading to a 40 percent year-on-year reduction in the average cost to connect each customer. The recent introduction of a seamless migration program in FTTN areas will further improve the customer experience and cost efficiencies. Customers on nbn™ ready plans are sent a compatible modem and phone so they can move to the new network with minimal disruption.

• By expanding our use of new technologies such as software defined networking, we were able to lower our energy and floor space requirements within our exchange sites.
• We also improved digital tools and processes for our customer facing teams including a Customer Advisor Tool which speeds up query resolutions, and My Account Mirror which mirrors the customer view of an account, helping our team guide customers through our self-service features.

As we accelerate our productivity program, we are already starting to see value delivered, with a 0.6 per cent reduction in our underlying core fixed costs in FY16. These are discussed in more detail under Full year results and operations review.

In response to mobile network interruptions in February and March, we provided two free data days for our mobile customers in every state and territory in Australia.

Many of our customers made use of this offering and we saw record data usage across our network on both days, with our network performing strongly throughout.

We also offered customers impacted by ADSL and nbn™ network outages service credits as a goodwill gesture; additional data packs; we refunded excess usage; and replaced modems no longer working.

In May, we also announced the results of a full review into our mobile network and we have since been working to implement the recommendations from that review, which will help to reduce the likelihood of future outages, with increased redundancy in our nodes, more core network capacity, new procedures for key network element restarts, and improving resilience in our international connectivity.

We have also recently completed an end-to-end review of our core network and IT systems, pinpointing sources of potential risk.

As a result of this work we will be investing $250 million in our network from our existing capital program over the next six to 12 months to provide a higher degree of network resilience and improved network performance. This includes investment in three key areas:

• enhancing the mobile network’s resiliency, to improve recovery time and create more effective real time monitoring
• improving reliability and resilience within the core network
• increasing current ADSL broadband capacity to meet increasing customer demand.