Ending CPI price rises – Telstra seeks “flexibility”

Telstra shifts from predictable inflation-linked pricing to a flexible model, signaling a focus on ARPU and market share.

Heath Gibson · Executive Manager – Industry Intelligence and Insights at NBN Australia24 May 2024Period: Q2 20244 min read

3.6%→

CPI for the March quarter (2024)

2022-2023→

Period of inflation-linked pricing strategy

Locked

Companies covered:

Abstract

This report analyses Telstra's strategic pivot away from annual postpaid price increases linked to the Consumer Price Index (CPI). Following a market announcement on 21 May 2024, Telstra is abandoning the predictable July price adjustment cycle in favor of 'flexibility.' The brief explores three potential scenarios driving this change: implementing above-CPI increases, deferring rises due to a weakening economy (3.6% CPI in March quarter), and responding to competitive dynamics to protect subscriber growth and market share.

Key Takeaways

Telstra is abandoning its two-year strategy of linking annual postpaid mobile price increases to the Consumer Price Index (CPI).
The move provides Telstra the flexibility to implement price rises larger than the 3.6% March quarter CPI or to increase prices multiple times per year.
Scrapping the fixed July price change allows Telstra to defer increases if economic growth remains subdued throughout 2024 as forecast by the Reserve Bank.

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Frequently Asked Questions

Telstra is abandoning the 2022-2023 strategy of CPI-linked adjustments to gain tactical flexibility. This allows the company to potentially implement price increases higher than the 3.6% March quarter CPI or adjust rates multiple times per year to respond to market shifts.

The strategy prioritizes subscriber growth, aiming to maintain the momentum seen in H1 FY24. By removing the fixed July price hike, Telstra can defer increases if the economy remains weak, protecting its base from aggressive competitor promotions.

The move removes the predictable 'up' signal for industry pricing, creating significant uncertainty for rivals like Optus. Competitors now face higher risks of losing market share if they proceed with planned hikes while Telstra remains flexible.

There is a risk that the lack of a clear pricing floor will trigger aggressive discounting across the sector. If margins compress below the levels supported by the 3.6% CPI benchmark, industry-wide investment in network infrastructure may be reduced.

Ending CPI price rises – Telstra seeks “flexibility”

Abstract

Key Takeaways

Frequently Asked Questions

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