Telstra rules out sale of fixed infrastructure unit

Investors overlooked Telstra's strong earnings numbers to mark down its stock 2.8% Thursday after the telco ruled out a sell-off of its fixed infrastructure unit.

The number-one Australian operator reported a 13% rise in net profit, 5% higher revenue and a 10% improvement in underlying earnings. The mobile business was the main growth engine, boosted by a post-COVID surge in roaming and gains in all segments including data, hardware, IoT and wholesale.

Mobile revenue climbed 8.3%, to $9.5 billion Australian dollars (US$6.1 billion), with a 15% rise in earnings (after interest, tax, depreciation and amortization) to A$4.1 billion ($2.6 billion). Excluding roaming, mobile services, revenue was up 4.3%. Total mobile subscribers grew 8%, to 22.5 million, while the 5G network reached its target of 85% population coverage.

"Our mobile business remains central to [Telstra's] growth and continues to perform very strongly," CEO Vicki Brady said on an earnings call.

But she said the company had decided to keep control of InfraCo Fixed, at least for the medium term.

InfraCo Fixed, which contains Telstra's passive fixed infrastructure, was set up at the start of the year as part of InfraCo, a spinoff that also contains Telstra's 51%-owned mobile tower business Amplitel. Telstra had said the standalone structure would provide transparency and "optionality" in terms of ownership.

But Brady said after "thoroughly examining alternatives, the company had concluded the greatest value for shareholders would be in maintaining the current ownership structure."

Strong demand for infrastructure

The CEO said Telstra was seeing strong demand for fixed infrastructure, including from hyperscalers, while long-term demand continues to evolve.

"This is being shaped by the shift to the cloud and rapid AI adoption driving data center and edge requirements, along with needs for domestic fiber and undersea cable," she said.

She would not confirm whether Telstra had received any offers for InfraCo Fixed.

Telstra sold off 49% of its mobile tower business for A$2.8 billion ($1.8 billion) in 2021, part of a wave of mobile infrastructure sales by Asia-Pacific telcos over the past two years.

The Amplitel tower unit is small but highly profitable, with a 9% rise in revenue and an earnings margin of just under 80% this year.

However, the fixed-line enterprise business faced "headwinds," with revenue and ARPU declining, Brady said.

She said Telstra was on track to meet its T25 plan targets and would maintain cost discipline in the face of an uncertain external economic environment.

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— Robert Clark, contributing editor, Light Reading