Outage strikes Telstra's premium reputation
Telstra has long profited from its reputation of having the largest and most stable mobile telco coverage in Australia, allowing it to charge premium prices. However, a nationwide outage on Wednesday morning that affected millions of customers, including those dialling triple zero, has badly dented that image. The telco is now grappling with its own crisis after benefiting from rival outages at Optus and Vodafone in the past year.
Premium pricing under threat
Omkar Joshi, chief investment officer at Sydney-based Opal Capital Management, says the outage dents Telstra's ability to charge a premium 'if it is not delivering a premium service.' 'One of the main differentiators to its competitors was that Telstra didn't experience network failures. Now that they have, Telstra is lumped into the same bucket,' Joshi says. Telstra charges $74 a month for its popular SIM-only 50GB mobile plan, $14 more than Optus's equivalent product, which comes with more data and a cut-price introductory offer. Vodafone's rival plan costs $58 a month and has the most data. Telstra tends to receive a bump in customer numbers every time a rival suffers a significant outage, and has had little reason to compete on price.
Share price and regulatory risks
The immediate impact on Telstra's share price has been modest, with its stock price falling 3% on Wednesday before recording a partial recovery. But as the number of outages climbs across the sector, the chances of more and stricter regulation increase. The repeat triple zero outages elevate the problem into a major issue of public safety. 'More regulatory intervention and focus is never a positive from a stock perspective,' Joshi says.
New threats: coverage maps and Starlink
Telstra is facing several headwinds that could disrupt its market position and pricing power. A recent ruling by the Australian Communications and Media Authority changed how mobile signal coverage is measured for official maps, reducing Telstra's official coverage by around one million square kilometres around Australia – an area greater than the size of New South Wales. This dents coverage claims used to justify premium prices. Telstra has said its network 'remains vastly larger' than any other network in Australia. The telco is also facing a threat from the Starlink satellite internet service, owned by Elon Musk's SpaceX, which has prompted investment bank Morgan Stanley to downgrade Telstra, according to a report in the Australian Financial Review. Australia is seen as a country ripe for disruption by Starlink due to its expansive geography and high telco costs for consumers. However, experts are not predicting that satellite technology will entirely replace terrestrial networks. Hailey Kim, senior investment analyst at Wilson Asset Management, says while satellite technology is a 'genuine long-term debate for Telstra,' it can't carry anywhere near the amount of traffic a mobile tower can. 'Where we will be watching closely is whether it slowly closes Telstra's coverage advantage over Optus and TPG, which is one of the few things that underpinned the premium for the stock,' Kim says.
Compensation calls grow
The communications minister, Anika Wells, said Telstra should 'face the music' and work hard to regain Australians' trust. In addition to cooperating fully and transparently in its investigations, Wells said it was 'only fair' that the company make people's compensation claims as easy as possible. 'I would expect that Telstra provides an expedited triage process for its customers to deal with compensation here,' she said. However, at a press conference on Friday, Telstra's chief executive, Vicki Brady, apologised for 'the impact this has had on so many people' but avoided answering directly when asked whether customers would be compensated. The telco's chief financial officer, Michael Ackland, said people could seek compensation by making a complaint through the 'business as usual' channels. The country's leading consumer advocacy group for the sector has encouraged people to seek compensation from Telstra if they were affected. Carol Bennett, the chief executive officer of the Australian Communications Consumer Action Network, says the issue had a 'profound impact' on the economy, stopping rail freight, public transport and Eftpos payment terminals. 'Telstra should step up and provide their retail customers with adequate compensation for not only the inconvenience but the safety risks this has caused,' she says. Bennett says people who experienced financial loss should keep records of failed payments, critical calls or missed appointments as evidence for a compensation claim. The telecommunications industry ombudsman, Cynthia Gebert, told ABC Radio on Thursday that compensating customers was 'the right thing to do' and people should contact Telstra if they've lost money. Andy Wei, a principal lawyer at Slater and Gordon, which led a previous class action against Optus over its 2022 data breach, says telco providers are bound by law to deliver services with due care and skill and 'to put things right when they fail.'
