Telstra bet on T22 to outlive the nbn and hit its turning point in 2021

The nbn — Australia's government-built wholesale broadband network — dismantled Telstra's historical position: the carrier handed over its copper and cable and now buys access back at regulated prices. In the 2018 annual report, John Mullen and Andrew Penn describe a fixed-line market where 'reseller margins are rapidly reducing' and a mobile market about to gain a fourth operator. Every year from FY17 began with EBITDA headwinds of up to A$800m. By August 2019 the ABC reported profit down 40 per cent to A$2.15bn, the dividend down 27 per cent to 16 cents, and 8,000 jobs being cut.

The answer, announced on 20 June 2018, was T22. The 2018 annual report lays out six outcomes — customer experience, simplification, network superiority, employees, cost reduction and a stronger balance sheet — on four pillars: radically simplify products around digital channels; establish Telstra InfraCo as a standalone infrastructure unit; greatly simplify structure and ways of working; and run an 'industry leading' cost and portfolio programme. The dividend had been rebased in August 2017, clearing the way for up to A$3bn of 5G and digitisation investment.

The 2021 annual report is the letter the numbers turned. 'The 2021 financial year was significant for Telstra in that it was a turning point in our financial performance', Penn and Mullen write, noting that the previous four years each began with EBITDA going backwards by up to A$800m. FY21 closed with A$23.1bn of total income, A$7.6bn of EBITDA (A$6.7bn on the underlying guidance basis), A$1.9bn of NPAT, 16 cents of fully franked dividends and A$1.9bn returned to shareholders — alongside A$2.3bn of underlying fixed-cost reductions since FY16 and A-band credit ratings held through the trough.

'After a decade of disruption following the creation of the nbn, we can now clearly see the path to underlying growth ahead', the letter opens. The COVID-19 years, which sent data traffic to records, also validated the network investment: the same 5G and fibre programmes derided as expensive at the 2018 profit warning became the basis for a market-leading position when demand surged.

FY21 EBITDA reached A$7.6bn (A$6.7bn underlying) with A$1.9bn NPAT; A$2.3bn of fixed costs were cut since FY16 and A$1.9bn returned to shareholders.

The nbn was a policy decision outside Telstra's control, so the response had to be structural — costs, organisation and asset structure — rather than a pricing or marketing fight.

Pulling InfraCo out as a standalone unit made infrastructure value visible and created optionality for future ownership changes after the rollout ended.

Digitising service cut cost-to-serve and lifted customer scores at the same time, aligning the cost programme with the customer agenda instead of trading one against the other.

Rebasing the dividend early, in August 2017, bought the credibility to keep investing through the earnings trough without a mid-course cut.

When a structural subsidy ends, cost discipline and structural simplification beat product pricing: Telstra cut A$2.3bn of costs and split out its infrastructure rather than fighting the nbn.

The FY21 T22 scorecard shows the pillars either complete or on track, and the letter promises details of 'what comes after T22 later in the year'. Penn handed the chief executive role to Vicki Brady in 2022 as the post-T22 phase began, with the infrastructure businesses structured for value separation and the group finally growing on an underlying basis after four years of annual headwinds.