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Will Telstra cash in on customer defections from Optus?

Peter Switzer
15 November 2023

The stock market is set to surge today following great inflation data out of the US overnight. And the stock to watch has to be Telstra, with the company’ s CEO Vicky Brady revealing that Optus customers have been defecting to its local rival following last week’s outage, which left customers ‘internet-less’ and phone-less!

In the modern IT world, this is like ‘cold turkey’ for the typical online-addicted user. It’s enough for many customers to say, “enough is enough, I’m out of here!”

But the question for existing and potential Telstra shareholders is whether the defections will be big. And if they are big, will that have a big impact on the telco’s future share price?

All this comes as the AFR’s Tess Bennet reports Ms Brady’s company “…is supersizing its plan to connect Australian cities with a high-speed fibre network at a cost of up to $1.6 billion, laying the groundwork for cabling that underpins new data centres and cutting-edge customer applications in artificial intelligence.”

The AFR story today says there is now “detailed planning for an additional five routes in the intercity fibre project first revealed last year, including adding a direct link between Darwin and Adelaide by 2026-27.”

While this is a huge play, it comes with a big capital outlay for the company, which explains why the Optus outage has seemingly done nothing for Telstra’s share price.

The chart below shows the five-day impact on Telstra’s share price after we learnt of the Optus cyber-crisis.

 

Telstra (five days)

The share price has actually fallen! However, that’s a typical response when a stock market hears that a company is set to spend a pile of money that will add to costs first before the revenue flows in as a consequence of that spending.

Telstra’s share price is down about 9% since Ms. Brady surprised the market by announcing it was abandoning plans to sell its InfraCo business, which holds digital assets such as fibre optic cable, data centres and subsea cables, which was valued around $15 billion.

While that disappointed the market, potentially it means Telstra could be a much bigger profit-maker in the future.

So, could last week’s problems for Optus help Telstra gain some share market love?

Interestingly, this is what Ms Brady said about the impact of the outage on her business: “Post-last week’s outage, yes, we’ve seen some increase in acquisition of customers. There’s been some speculation about how large that could be, and I would just go back to the cyber breach last year … [when] we saw elevated acquisition levels for around a six-week period, but at the end of the day, there wasn’t a significant shift in share in the market.”

However, it could be a case of “let me down once, shame on you, but let me down twice then shame on me!”

The AFR says “JPMorgan forecasts Telstra could gain up to $125 million in earnings over the next few years” because of the disgruntled effect. But who can really calculate how annoyed Optus customers are and how easy is it to change telco providers?

FNArena’s consensus survey sees a 14.9% gain for Telstra, but this number wouldn’t have the $1.6 billion spending factored in. That said, as you can see below, five out of five analysts like Telstra and the biggest predicted gain is 22.74%.

This isn’t financial advice but following the problems for Optus and Telstra’s plans for a future that will increasingly be more dependent on telecommunications, artificial intelligence and everything online, I think Telstra’s share price is more likely to rise than fall.

By the way, I have to ask this: will Optus customers get angrier and want to leave the telco when they hear who was responsible for the outage?

The SMH reported the following on the outage: “The unnamed ‘international peering network’ that Optus said had contributed to its 16-hour-long network meltdown last week was its Singaporean parent company Singtel, it can be revealed.”

Will more customers want to leave Optus? You’d have to say: “YES!”

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