Optus gears up for battle

Telco to make biggest infrastructure investment in more than a decade in bid to fight Telstra.

Optus is set to make its biggest infrastructure investment in more than a decade in its ­mobile network this year as the No 2 telco prepares to utilise a new tranche of wireless spectrum that the company says will reinvigorate its fight against Telstra.

As part of a wide-ranging interview with The Weekend Australian, Paul O’Sullivan, chief executive of SingTel’s consumer group — which oversees the telco’s customer operations across Singapore and Australia as well as its investments in Thailand, India, Africa, The Philippines and Indonesia — has signalled a new fight for the ­nation’s mobile customers is ready to erupt as the telco positions itself to recapture market share after a year of customer losses. “It’s one of our biggest and certainly the biggest spend in over a decade,” Mr O’Sullivan said. “The amount of money we are putting into our networks is a sign of our confidence.

“We have a strong belief that Australians want someone who is challenging the other guy, someone who is willing to compete on service and value and not just on claims about network.”

Mr O’Sullivan, the former CEO of Optus in Australia, would not reveal the full extent of the telco’s spend on mobile for the year, but he said the company would be investing as much as $1.2 billion on all infrastructure investments.

Sources close to the company have said that Optus will spend as much as $800 million on its mobile network alone this year, up from the $600m it usually spends.

While that investment still pales in comparison with the $1.2bn that Telstra will spend on its mobile network this financial year, Mr O’Sullivan said Optus had in place a disciplined cost structure that was helping it derive better returns on its investments, and thus more profit from its subscriber base.

“As a priority moving forward it’s about profitable and sustainable growth, not about chasing revenue for the sake of it. That’s the core of our strategy,” he said.

“You have to be extremely focused on return on your capital so you can have the ability to continue to invest. You’ve seen one of our competitors fall away because they have been unable to keep up that investment cycle.”

The decision to increase its infrastructure investment comes at a crucial time for Optus, which has weathered revenue and customer declines over the past year as its once booming mobiles business declined in the face of intense competition from Telstra.

The No 2 telco posted a 5.4 per cent drop in revenue to $2.16bn in the three months to December 31 on the back of a seventh consecutive revenue fall in its mobiles business, which declined 6.3 per cent to $1.4bn. The fall came as Optus revealed it had lost 64,000 customers in the quarter and 134,000 for the year, taking its subscriber base to 9.4 million.

In the last six months of last year, Optus shed 102,000 mobile customers, while Telstra picked up 739,000 new subscribers to take its total beyond 15 million.

The concerns about Optus’s faltering financial position were compounded in February when the telco’s highly regarded boss Kevin Russell announced his shock resignation just halfway through a three-year strategy of improving its network and brand to drive greater profitability.

As part of a big push to improve its standing among customers, Mr Russell shook up the telco’s approach to pricing and, in an industry first, abolished contract breakage fees as part of a move to eliminate “bill shock”.

Despite sacrificing short-term revenue gains when customers would break their data caps, the new plans have been a success, with more than 400,000 customers switching over. Coupled with a reduction in handset subsidies, the changes under Mr Russell helped Optus deliver more sustainable profits. In the December quarter the telco reported a $227m profit despite the backdrop of its overall declines in revenue.

Mr O’Sullivan said the strategy put in place under Mr Russell would continue, but it was time for Optus to once again go after market share. “We want that to drive subscriber growth once again. It won’t happen overnight and we won’t pursue growth at any cost, it will be sensible, balanced growth,” he said.

“You will see Optus looking to leverage off the fact that we are now the leader in customer experience and that we have a stronger network.” One area that Mr O’Sullivan revealed Optus would target for growth in the next 12 months is regional and rural Australia.

He said the landscape for competition in the $35bn-a-year telecoms sector will undergo a dramatic change next year when the 700Mhz spectrum once used for analog TV signals is switched off and handed over to the nation’s leading telcos.

The low-frequency spectrum in the 700Mhz band is considered essential for the next phase of 4G mobile services because its signals can penetrate through walls and over long distances. Optus spent $649m to acquire a large chunk of 700Mhz spectrum in last year’s auctions. Telstra spent twice what Optus did to double its holding.

Yet Mr O’Sullivan predicted the telco giant will be opened up to competition in rural and regional areas. “When we get our 700Mhz spectrum frequency turned on in January, you will find that right across Australia Telstra will have another car right on its wing, competing with it in a way that it has never had to deal with before,” he said.