Why pay a premium fee for a service that isn’t? How the nationwide outage could hurt Telstra

The telco has long banked on its reputation as having the most stable, widest mobile telco coverage. That is now badly dented

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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.

When its main rival, Optus, suffered a series of operational issues that culminated in a damaging triple zero outage last year, Telstra attracted new customers.

It benefited again last month, when TPG-owned Vodafone Australia recorded an outage.

Now Telstra is grappling with its own crisis, after it plunged into a nationwide outage for most of Wednesday morning, affecting millions of customers including those dialling triple zero, and attracting fierce criticism from politicians.

How costly is the outage to Telstra, and what other threats are looming over Australia’s biggest telco?

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.

When telcos do experience problems, they are usually more careful about price rises, and they often launch promotions to soothe frustrated customers.

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.

Telstra shares have long been a favourite among retail investors because it enjoys a dominant share of the telco market, while delivering a predictable income stream to investors via dividends.

But it is facing several headwinds that could disrupt its market position and pricing power, which include a recent ruling by the Australian Communications and Media Authority changing how mobile signal coverage is measured for official maps.

Telstra’s official coverage reduced by around one million sq km around Australia – an area greater than the size of New South Wales – due to new signal thresholds, denting coverage claims which have been used to justify premium prices.

Telstra has said its network “remains vastly larger” than any other network in Australia, and that it provides coverage in areas others don’t.

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.

A downgrade means the investment bank views Telstra’s outlook less favourably than it once did.

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 the more powerful terrestrial networks used across the country.

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.

The communications minister, Anika Wells, said Telstra should “face the music” and work hard to regain Australians’ trust, given it had previously been regarded as the country’s premium telco service.

In addition to Telstra 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 by the outage.

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.

Bennett says the organisation heard from trade and construction workers who couldn’t reach clients, while contractors and office workers were locked out of their own buildings. Many small businesses could not conduct their regular trade.

“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 due to the outage should keep records of any failed payments, critical calls or missed appointments and use this 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, in the first instance, if they’ve lost money due to the outage.

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”.