Telstra is moving to head off the entry of David Teoh’s TPG Telecom into the ultra-competitive $8 billion mobile landscape with the launch of its own low-cost mobile.
Telstra will expand its low-cost broadband business Belong into mobiles and while it did not give a definitive date for its launch, it is expected this calendar year.
“We’re launching Belong mobile because of the success of Belong fixed,” Telstra chief executive Andy Penn said.
Belong makes up around 5 per cent of Telstra’s overall fixed internet customer base, or around 150,000.
“We’re excited by the opportunities of Belong mobile. It’s really recognising there are different segments of the market,” Mr Penn said.
Traditionally, Telstra has not heavily marketed its Belong brand, but the move into low-cost mobile will no doubt see Telstra’s main rivals Optus and Vodafone Hutchison Australia stand up and pay attention.
The move is also an acknowledgement from Telstra that Optus and Vodafone, who charge consumers less, have drastically improved their own mobile networks.
A low-cost provider will have smaller margins than Telstra’s branded mobile business. Telstra earnings before interest, tax, depreciation and amortisation margins on mobile was 43 per cent in 2016-17.
However, Telstra is searching for ways to plug a $3 billion earnings black hole which results from the completion of the National Broadband Network rollout in 2020.
Expected to follow the model that has brought it so much success in broadband, TPG will undercut rivals on price, even flagging the first six months free to entice customers upon its mobile launch.
Telstra’s advantage has always been the strength and breadth of its mobile network, and seems to have fixed the problems in had in 2016, while TPG has allocated just $600 million to his its metropolitan city-based network.
Telstra made close to $8 billion in mobile revenue over 2016-17 – the majority of which was postpaid mobiles, around $5.4 billion.
Mobile is also tipped to be one of the big products which helps Telstra fill its $3 billion earnings hole.