Telstra Group Limited (TLS) Earnings Call Transcript & Summary

Good morning, and welcome to Telstra's results announcement for the full year ended June 30, 2023. I'm joining today from the lands of the Gadigal people. On behalf of Telstra, I acknowledge and pay my respects to the traditional custodians of country throughout Australia, and recognize the continued connection Australia's First Nation peoples have to land, waters, and culture. We pay our respects to elders past and present. Today, I will make some brief comments on our key highlights. Michael will then take you through the financials in detail, after which I will summarize our progress against our T25 strategy and FY '24 key focus areas. We will then take questions from analysts, investors, and media. Overall, for the year, our results show continued growth in reported and underlying earnings with positive momentum across our key indicators. This momentum is also reflected in the progress we have made in the first year of delivery against our T25 strategy. Focusing on the key highlights for the year. Total income was up 5.4% and EBITDA increased by 8.4%, driven by momentum from our mobiles business and support from the acquisition of Digicel Pacific. Underlying EBITDA increased by $699 million or 9.6% to $8 billion. Excluding Digicel Pacific, underlying EBITDA increased 5%. EBITDA growth flowed through to 13.1% increase in net profit after tax to $2.1 billion. Reported earnings per share increased 16% to $0.167. Underlying ROIC increased to 8.1% and is back above our cost of capital. Our episode NPS increased by 6 points to 43, which is 3 points above target. Overall, our T25 strategy is on track, including our growth ambitions in underlying EBITDA and earnings per share. On the back of continued growth in the year, the Board resolved to pay a fully franked final dividend of $0.085 bringing total dividends for the year to $0.17 and representing a 3% increase compared to last year. The final dividend is consistent with our policy to maximize the fully franked dividend and seek to grow it over time. While our overall momentum is good, we have some parts of the business performing well and others where we continue to see challenges. Our mobile business remains central to the growth and continues to perform very strongly. Our consumer and small business fixed, international infrastructure, and Telstra Health businesses also grew earnings. At the same time, there are aspects of our enterprise fixed business that are experiencing headwinds, in particular, data and connectivity and calling declined at a greater rate than we anticipated. We are focused on maintaining momentum in fibre, scaling and simplifying our products to meet customer needs, reducing costs and driving growth across [indiscernible]. Michael will speak more about this in detail. We remain disciplined on costs, particularly considering the external economic environment. Looking beyond T25, as connectivity increasingly underpins the way Australians live and we are in a position to play an important role in Australia's digital future. The infrastructure investments we are making, including our intercity fibre network and submarine cable network will underpin a more digitized future for the nation and see us strategically positioned for growth. We are working with customers across industries to help them digitize and unlock productivity gains that flow through to the national economy and to global markets through our international business. We also continue to invest in capabilities and partnerships to grow our offerings in areas including artificial intelligence, data analytics, Internet of Things, and cybersecurity. And I am optimistic about the potential for growth in these areas beyond T25. At the same time, we are bringing new and better connectivity options to regional and remote areas that helped to close the digital divide and lift digital inclusion. I believe Telstra has a critical role to play in Australia's future and the significance of that role will only grow. I will now hand over to Michael to go through the numbers in detail.

Thanks, Vicki. I am pleased to present Telstra's full year 2023 results, which show continued momentum from the first half, in line with our T25 growth ambitions. I'll step you through the high-level results before getting into some detail. Starting with our income statement on Slide 7, which clearly demonstrates our growth. Total income was $23.2 billion, up 5.4%. EBITDA was $7.9 billion, up 8.4%. Underlying EBITDA was $8 billion, up 9.6% from ongoing organic growth across several products, including mobile and M&A, including our acquisition of Digicel Pacific. Excluding Digicel Pacific, underlying EBITDA grew 5%. Depreciation and amortization increased with contribution of Digicel Pacific this year. It is expected to increase again next year given shorter life CapEx spend in recent years. EBIT was $3.4 billion, up 17%. Net financing costs increased over around 27% over the year, reflecting higher debt levels following the acquisition of Digicel Pacific and higher borrowing costs. Tax also increased nearly 22% on higher profit. The effective tax rate was 28%. Earnings per share was up 16%, reflecting higher earnings and lower average shares on issue following our buyback in FY '22. Looking at product performance on Slide 8. We saw strong earnings growth in mobile and Internet as well as InfraCo Fixed, fixed C&SB, and Amplitel demonstrating there is a diversification of our portfolio. This was partly by offset by decline in fixed enterprise. Mobile growth in service revenue, while international growth mostly came from the [Technical Difficulty] pleasingly, Telstra Health revenue was up 25% to $305 million in the period, with organic growth as well as M&A. This will [Technical Difficulty] other on the slide. While we remain positive about the future of Telstra Health, we now expect to reach our ambition of $500 million in revenue beyond the T25. I'll step you through our key products, starting with mobile on Slide 9. In Mobile, we achieved continued growth in revenue, EBITDA and SIOs with disciplined execution of our strategy. In the top left chart, you can see mobile service revenue up 7.9%. All segments and sub-products, including mobile broadband, IoT and wholesale grew. IoT SIOs in particular, continued to scale. International roaming by $185 million, our activity around pre-COVID levels in second half. Service revenue [Technical Difficulty] roaming and a $42 million one-off improved -- in the first half grew 4.8%. Our ambition is to continue mid-single-digit growth in revenue to FY '25. In postpaid handheld, we added net 86,000 SIOs during the year, while prepaid handheld unique users increased 247,000. Wholesale unique users also grew 298,000. These results were driven by market growth, particularly at the low end, lower price points, including the impact of the return of incoming travelers and migration and price dynamics, including the impact of price rises announced during the year. Our focus remains on ensuring our multi-brand strategy delivers optimal value outcomes. Postpaid handheld ARPU, shown in the bottom left chart, grew 5.4%. This was driven by C&SB planned price increases in line with CPI and higher roaming. This was offset by negatives, including enterprise messaging benefit last year. Prepaid handheld delivered a strong performance. This was driven by SIO growth and increased data usage as well as the one-off benefit from product migration we announced in the first half. Finally, hardware revenue also grew over 12% with higher margins from greater pricing discipline and following the in-sourcing of the stores. In fixed C&SB, we've continued to execute on our growth strategy in what continues to be a competitive market. We're continuing to invest in customer experience. The majority of new sales are now being made on the new digital stack, which also supports greater efficiency. Our NBN reseller margin has increased to over 8% from 5% last year, driven by 3.6% ARPU growth following price rises and careful cost management. Fixed Wireless continues to scale with broadband and voice services contributing to improved margin outcomes. We've made progress. However, market dynamics remain challenging. We are yet to see a stabilization in SIOs and have more to do. In addition, the protracted NBN SAU process has led to delays in some of our commercial execution. We will continue to take action to ensure we have a sustainable reseller business. However, our ambition of mid-teens margin is unlikely to be met by FY '25. Our primary focus is to deliver EBITDA growth across the fixed C&SB portfolio by limiting on net legacy losses, ongoing cost efficiency, and optimizing our customer propositions across technologies. Turning to fixed enterprise on Slide 11, which is made up of data and connectivity and network applications and services. Clearly, fixed enterprise has -- overall revenue felled with growth from NAS offset by the ones in DAC. DAC revenue declined 16.2%, impacted by ongoing disruption from technology change and competition. We continue to see ARPU competition as we reprice and proactively renewed DAC. We expect further ARPU declines to FY '25. Positively, we have seen improvement in fibre size, including NBN Enterprise Ethernet. We remain focused on customer retention, simplifying products and IT platforms, improving customer experience, and reducing cost to connect and serve through automation. NAS revenue grew 3.4% with growth from professional and managed services, cloud, security and acquisitions, offset by calling where decline accelerated beyond their expectations. Excluding calling and acquisitions, NAS revenue declined [Technical Difficulty]. Our focus remains on building deep strategic relationships with hyperscalers, extending our industry expertise with industry-specific partners, applications, and software in growth areas such as cybersecurity. Notwithstanding ongoing headwinds from calling, our revised ambition is for NAS revenue and EBITDA annual growth to FY '25. While we believe a mid-teen margin is required to deliver appropriate returns from this business, and it remains our longer-term ambition. We do not expect to achieve this within the T25 period. Turning to International on Slide 12, which includes the results of Digicel Pacific acquired during the year. Digicel Pacific contributed income of $719 million, up 2% on pro forma FY '22 at constant currency. EBITDA was up 5% on the same basis. As noted in our half year results, the implementation of the corporate restructure has introduced internal revenue and costs to international performing from the second half of the year. Excluding Digicel Pacific, external international income grew 2.3% on a constant currency basis. While reported EBITDA was down, International EBITDA, excluding Digicel Pacific and corporate restructure impacts grew 5.7% on a constant currency basis. Demand for pan-Asia connectivity remains strong and we are well positioned with our unique assets. We're also continuing to invest to build capacity for long-term growth. Turning to Infrastructure on Slide 13. InfraCo fixed EBITDAaL grew 3.9%, excluding commercial and recoverable works and legacy network disposals, representing growth from core excess for ducts, fibre, and network sites. Core excess grew both internal and NBN recurring revenue growth. The latter grew 6.1%, supported by CPI indexing with a 7.3% price increase from the 1st of January 2023. This was offset by declines in NBN commercial works in line with contract expiry. Overall, EBITDAaL grew 0.1%. We are focused on InfraCo growth and efficiency. These are long-term assets. And we are investing for the long term. Investments in strategic infrastructure projects began during the year. We expect our new intercity fibre network to deliver growth from FY '26 as capacity comes online. Operating and maintenance costs also increased, and they will, again, to FY '25 as we improve asset quality and efficiency in the medium term. While we continue to demonstrate the growth potential of our infrastructure through Amplitel, it grew EBITDA by 9.2% from increasing tenancy on new towers and strong demand for new tenants for existing towers. With over $2 billion in long-term contracts signed, we're excited about the future of this business. Given this performance, we see Amplitel EBITDAaL CAGR increasing from low to mid-single digits to mid to high single-digit to FY '25. Turning to our operating expenses, which you can see on Slide 14. Total costs increased 4.1%. The focus of our productivity program has been fixed-cost core, which we reduced by $41 million over the year. We have delivered this absolute cost reduction and net productivity in spite of onshoring of call centers, higher-than-anticipated inflation, $45 million higher energy cost and FX headwinds. Labor costs are the biggest component of fixed cost core. While we have enterprise agreements in place for the FY '24 period, which provided a degree of certainty, we do not have an agreement beyond October 2024. Energy costs are expected to rise in FY '24. However, further increases are largely hedged for FY '25. Our ambition for fixed cost core reduction of $500 million remains unchanged. However, it has only become more challenging throughout the year given the persistence of inflation and the potential for this to continue. While we still expect to achieve the large majority of this ambition by FY '25, the level we achieve will ultimately depend on factors, including inflation, wage negotiations and decisions we make around investments. Areas of productivity, we remain focused on include migrating customers off legacy platforms, exiting products and further automation and digitization, efficiency in our IT software costs, decommissioning legacy infrastructure and further benefits from AI. Above all, we remain resolutely committed to achieving our T25 underlying EBITDA and EPS growth ambitions. Turning to free cash flow on Slide 15. Our free cash flow was around $2.8 billion on a guidance basis. As previously indicated, the second half saw an increase in cash flow. The decrease in cash flow compared to the prior year was primarily driven by an increase in CapEx and movement in working capital. In FY '22, reduced receivables, including from lower hardware sales, resulted in a release of working capital. While in FY '23, it was largely flat. Pleasingly, our receivable metrics, including day sales outstanding, aged debt, and bad debt remained broadly flat year-on-year with consumer metrics at historic lows. We continue to monitor the macroeconomic environment and the outlook for continued cost of living pressure for the community and small business. CapEx increased on the inclusion of Digicel Pacific and strategic investments. As noted at the half year, payments related to M&A included the acquisition of Digicel Pacific and associated earn-out. Turning to our capital position on Slide 16. Net debt increased over the year, largely due to nonrecourse funding for the acquisition of Digicel Pacific. Borrowing costs increased to 4.6% due to higher floating interest rates and the higher cost of the Digicel Pacific debt. Average debt maturity is 3.9 years and approximately 70% of debt is subject to fixed rates. We remained in our comfort ranges for all credit metrics with debt servicing at 1.8x. Underlying ROIC improved to 8.1% consistent with our T25 ambition. Note that average invested capital will increase next year due to spectrum and Digicel Pacific. Turning now to guidance for FY '24, which can be seen on Slide 17. You can see the ranges along with the conditions upon which we have provided them. On income, the range shown here reflects continued momentum in service revenue, but lack of certainty on the level of hardware sales. Underlying EBITDA guidance is consistent with our T25 ambition for mid-single-digit CAGR FY '21 to FY '25. CapEx guidance of $3.6 billion to $3.7 billion includes around $300 million of strategic investment outside of BAU for intercity fibre and Viasat infrastructure projects, around $150 million for Digicel Pacific and increased commitment to infrastructure investment in international. This guidance excludes material one-offs such as spectrum payments and potential cash amounts relating to NBN network rollout progress and remediation costs as detailed in our accounts. Importantly, we expect to continue to achieve strong cash flow, enabling us to invest for growth and deliver returns to our shareholders. So to summarize, our business continues to grow. We're focused on delivering our growth strategy, maintaining cost discipline as well as navigating the challenges within our legacy products. And we remain well positioned in the current economic environment. Finally, I'd like to thank the Telstra team for their ongoing efforts in delivering value for our customers, the community and our shareholders. I'll now hand back to Vicki.

Thank you, Michael. So as you can see, overall, we've achieved positive momentum driven by continued growth across several products, including mobile, with some challenges in enterprise fixed. Turning now to our T25 strategy. In a few months' time, we will hit the halfway point in delivering our strategy. And the response from customers tells me we are absolutely on the right path. We have customer satisfaction at a record high and our strongest reputation result as measured by RepTrak in 15 years. Australians are beginning to see a change in us; driven by improvements in customer experience, continued network leadership and our strength in cybersecurity. We continue to focus on where we can make the biggest difference for customers. And as a result, we have made decisions to reprioritize and accelerate in some areas. For example, we will not scale our retail energy business in FY '24. We will focus on accelerating digitization and finishing the job of migrating consumer and small business customers off legacy systems. You can see on the slide the progress we've made against our customer experience pillar. We continue to see positive impact of product simplification, digitization, answering consumer and small business calls in Australia and bringing our retail stores in-house. Episode NPS improved 6 points over the last 12 months and is at historic highs with improvements across consumer and small business and enterprise. We made great progress on digitization in consumer and small business, 88% of sales and 43% of services are on the new digital stack, including all prepaid mobile services. Overall, we have digitized 68% of our key service transactions like billing inquiries. And we are well on the way to digitizing all key service transactions by FY '25. It's clear that customers are feeling the benefits of digitization. Comparing the new digital stack to the old stack, episode NPS has doubled. And the average time for fixed activations has halved. Cybersecurity is extremely important to us and our customers. We continue to lead the industry in stopping scams. And our cleaner pipes program is detecting and blocking more e-mail, SMS and phone scams than ever before. We launched our scam indicator pilot with the Commonwealth Bank to help detect live phone scams before it's too late and a national phone number for customers to report SMS scams to our cyber team. We also took steps to improve the way we collect and retain customer ID data to help reduce the risk of cybercrime for our customers. In Telstra Enterprise, Telstra Connect adoption continued to grow with 51% of service interactions now flowing through the digital channel. As a result of customer experience improvements, customer complaints reduced to a record low in the year. TIO complaints from consumer and small business customers reduced by more than 1/3 on the prior year and 98% of Telstra Enterprise billing disputes are now resolved within 1 billing cycle. I am proud of this progress, but I also know we have more work to do, and we are accelerating to get there faster. Against network leadership, we are on track to meet most of our commitments by FY '25. We achieved our FY '23 5G population target of 85% and 41% of our mobile traffic was on 5G. We've brought more capability into our 5G network, including 5G stand-alone. This means we can carve up our network into separate secure slices that can support lower latency and be finely tuned to suit the needs of our customers. We have the largest mobile network in Australia with around 1 million square kilometers more coverage than any other mobile network. We are on track to deliver an additional 100,000 by the end of FY '25 with 80,000 square kilometers already delivered. The decision by the Australian Competition Tribunal and the ACCC not to grant authorization for our multi-operator core network agreement with TPG was a disappointing outcome, particularly for customers in regional Australia. Despite this, we remained committed to improving customer experience outside metro areas. And we continue to invest in new ways to keep people in regional and remote locations connected. Our deal with Starlink will see us deliver new and improved services in regional and remote Australia. And our consumer customers will be the first in the world to be able to access broadband with a voice service over Starlink's low earth orbit satellites. We also announced a deal with OneWeb to shift a satellite-based backhaul for our mobile, remote mobile base stations, which will mean more reliable voice and data services in regional and remote Australia. And we are working with Viasat on their global Viasat-3 satellite constellation that will help connect people in hard-to-reach places across the Asia Pacific region. On our intercity fibre project, construction is well underway. And we are seeing strong interest from hyperscalers, other operators, satellite providers and national enterprises. This project is a big step toward delivering Australia's next-generation fibre network that will enable ultrafast connectivity between capital cities as well as into regional and remote communities. Against the growth and value pillar, we delivered growth in underlying EBITDA and EPS. In the year, we continued to show discipline on costs and improved ROIC. We have grown underlying ROIC to 8.1% and we are focused on further growth to FY '25. Michael talked you through the economic environment. However, I wanted to reinforce that while our cost-out ambition is being challenged by high inflation, we still expect to achieve the large majority of this by FY '25. We remain absolutely committed to delivering our underlying EBITDA and EPS growth ambitions. Against the place you want to work pillar, our employee engagement score was 80. This result ranks us near the top companies globally, however, below our 90th percentile target. We are focused on continuing to improve engagement with our people and creating the right culture to help us achieve our goals. On digital leadership, there are a number of highlights. We continue to partner with technology leaders to help unlock the benefits of a more digitized future for Australia. For example, our venture with Quantium to harness the power of data and AI is already enabling new services for our customers, including the scam indicator pilot I mentioned. We're also working with a range of industry and technology leaders across our enterprise business as we grow our digital capabilities in sectors critical to Australia in the world, including agriculture, resources and financial services. We're determined to be a leader in how we apply AI in our business and how we will help our customers transform their business. Within Telstra, we're already using AI to improve 1/3 of our key processes, including to, reduce network energy consumption and solve customer issues faster. Our goal is to improve all of our key processes with AI by FY '25 while maintaining strict principles around how it is used. We've also continued to invest in our API-first architecture, a big area of opportunity to improve offerings for customers, halve our time to market and reduce costs. In doing business responsibly, from an FY '19 baseline, we reduced our absolute Scope 1 and 2 emissions by 30% and we reduced our absolute Scope 3 emissions by 28%. This is great progress towards our ambition to reduce absolute emissions by at least 50% by 2030. We helped more than 1 million customers in vulnerable circumstances stay connected in FY '23. We also expanded our prepaid top-up program with Info Exchange to reach more customers in need of financial assistance who may be experiencing mental health challenges, disability, homelessness, family or domestic violence or who need emergency relief due to natural disaster. Over the last 2 years, we've also supported more than 250,000 Australians to grow their digital skills through a range of customer and community programs, including Fresenius and First Nation Australians. Our positive progress in the year is reflected in our T25 scorecard, which demonstrates we are on track to deliver the majority of our T25 metrics. We completed 2 metrics in the year, achieving $8 billion in underlying EBITDA and around 8% in underlying ROIC. We missed on Telstra Plus but grew members to 5.1 million. And we will deliver more engagement through personalized offers. There are a number of metrics we have rated at amber where work has commenced, but early progress is below where we want it to be. For example, in strategic NPS once and done for consumer and small business customers and time to market for products. Renewable energy generation shifted to Amber due to the risk to timing of projects coming online. We have supported investment of more than $1 billion in renewable energy projects to date. And we will support more to contribute towards our target of enabling renewable energy generation equivalent to 100% of our consumption by 2025, reaching the top 20% in the digital capability index is rated as red. We are behind where we would like to be on this. And we are focused on how to best close the gap. There are 2 metrics where our targets have been removed since the T25 scorecard was first published. These metrics are marked as gray. I'll now provide an update on InfraCo. When we established InfraCo and embarked on our group restructure, our aim was to create transparency of our infrastructure business to run it as a stand-alone business and to provide optionality. We have achieved these 3 goals and created a strong digital infrastructure operator. Overall, there is now a clear understanding of the value of InfraCo within the Telstra Group. As we've demonstrated before, where we see the opportunity to realize value through monetization, we will, for example, through the 49% sale of Amplitel. After thoroughly examining alternatives, we've concluded that the greatest value to be created for shareholders is by maintaining the current ownership structure of InfraCo fixed for at least the medium term. We are seeing strong customer demand for our infrastructure, while customer needs and long-term demand continue to evolve. This has been shaped by the shift to the cloud and rapid AI adoption, driving data center and edge requirements, along with needs for domestic fibre and undersea cable. Maintaining the current ownership structure provides alignment across the whole of Telstra to best capture and maximize long-term value. First, by providing the flexibility to meet evolving customer needs through how we go to market and deliver products and solutions. Second, by continuing our work on improving the efficiency of InfraCo fixed, including across our portfolio of fixed network sites; third, by delivering growth projects, including our intercity fibre and exploring further growth opportunities. And finally, because we are best able to explore other operating and financial infrastructure partnerships. Our focus remains on delivering long-term sustainable growth and the objectives and principles of our capital management framework, including seeking to grow our dividend. InfraCo Fixed plays an important role in enabling this, particularly in an inflationary environment. FY '24 will be a critical year for us with a lot to deliver. We will continue to prioritize activities with the greatest impact on customer experience and invest in the capabilities and assets we need to deliver sustainable growth. There are 4 areas we see as key to maintaining our financial momentum and delivering sustainable growth for shareholders. The first is mobile, underpinned by network leadership and delivering new network experiences for our customers. The second is growth from infrastructure and maximizing InfraCo fixed value. The third is continuing overall consumer and small business fixed growth. We are focused on evolving our customer propositions as well as ongoing cost efficiency. The largest contributor to cost is consumer and small business fixed is the NBN wholesale charges. We have been advocating for a reduction in these charges as well as for service standard improvements as part of the NBN special access undertaking. This has been an extensive process. And although we would have liked to have seen more done, now is the time to move forward. The fourth area, as I spoke to earlier, is improving enterprise fixed performance. This includes driving growth in NAS. With that, let me close out my first full year results presentation as the CEO of Telstra. I am proud to lead this highly capable team and proud of everything we have achieved in the year, including continued growth, progress on our T25 strategy and a solid foundation for growth beyond T25. Thank you to the Telstra team for all that you have done this year to serve our customers and each other. I will now hand over to Nathan Burley, Head of Investor Relations, to take us through Q&A.

Thanks, Vicki, and good morning, everyone. We will now start a time of analyst and investor Q&A. [Operator Instructions] The first question today is from Eric Choi from Barrenjoey.

Congrats on the first result, Vicki. All of the short-term stuff looks pretty in line. So my 3 questions are more longer term. On the first one, just on mobile, the FY '24 mobile ARPU outlook is pretty clear. But just wondering if you can talk to your confidence in growing yield in FY '25 and beyond, I'm just trying to balance positives such as the industry collectively having ROIC targets for the first time and MVNO pricing is finally starting to step up against some negatives such as your postpaid churn is starting to tick up as well and inflation might slow. Then just a second question on InfraCo. You've talked to creating value by holding it to the medium term. I'm just wondering if you can talk to the operational and financial initiatives that you might employ, for example, how you might leverage higher inflation, what efficiencies you might drive and whether you could even gear up InfraCo. And then is this enough to offset a valuation multiple contraction if rates also lift into the medium term? And then, just a last question on free cash flow. I think there's still some investor confusion around free cash flow versus accounting EPS. So can I just confirm that gap is essentially closed now? And then I noticed there's some short-term capital calls such as NBN true-ups and spectrum that might drive reported free cash flow below EPS. So my question is, are you happy to look through these short-term reported free cash flow fluctuations for the purposes of your dividend? And sorry for the mouthful.

Thanks, Eric, and thank you for your best wishes. It's nice to have my first results presentation complete. So let's go to your 3 questions, which have a number of parts to them as well. So I'll make some comments. But I will get Michael and also Brendon to jump in on a couple of them as well. So firstly, on mobile, as I just spoke to and Michael spoke to as well, yes, we're really pleased with the performance of the mobile business. And we're also confident around the outlook for that business. I think the thing that I step back and look at with mobile is it just continues to be incredibly important to our customers, whether it's in their daily lives, in business. We've seen data growth on our mobile network over the last year at around 35% and we're expecting that to continue. So that importance of mobile and how much value customers place on it. I think put this into and obviously continuing in our leadership position from a network point of view is absolutely core to our strategy. We have, as you know, changed our terms and conditions last year, where we put in an annual pricing review into our mobile postpaid and our mobile broadband plans. We think that's important to give customers that certainty of when we will do those reviews. And look, so I remain optimistic while mobile. And I foresee it continuing to be very, very important to our customers. And they'd really do expect a high level of performance and our leading network. We do invest a lot of money in to make sure we deliver that for our customers. So I'm optimistic on mobile. And there's no change in terms of our ambitions in terms of that mid-single-digit CAGR on mobile service revenue. I'll talk a little bit to InfraCo and then I'll pass across to Michael and Brendon. So look, on InfraCo. We're really excited by InfraCo. It is -- the last few years has been a big change. And Brendon and the team have done a really great job running InfraCo as that standalone business, thinking about it as a standalone business as opposed to just thinking about it as the infrastructure that supports our overall network. And so we absolutely see opportunities for further growth. Obviously, the first 5 routes of the intercity fibre rollout. They are underway. And we are seeing strong interest and demand from customers. That infrastructure that hasn't been invested in for a couple of decades in the country and it is absolutely foundational infrastructure and investment to support the digital future of the country. And so we're expecting long-term demand there. We will also be focusing, as I mentioned, on efficiencies and particularly if you think about InfraCo Fixed, it's got a number of asset classes in there. Those fixed network sites and driving further efficiency there is definitely a priority for Brendon and the team. And as I mentioned, by keeping the current ownership structure as it is. We do still have the ability as we look at growth opportunities and projects. We can look at different operating and financial partnerships. And so we would expect to explore a full range of those as we look at opportunity and the best way to be able to invest in excess capital to grow that business and deliver those long-term returns. I'm going to leave free cash flow for Michael. But why don't I hand to Michael first to make any comments he wants and then pass across to Brendon?

Yes. Thanks, Vicki, and thanks, Eric; great question. I think Vicki has covered mobile and InfraCo. And I think that point around the opportunity to explore a broad range of financial and operational partnerships for growth, I think, is incredibly important. On free cash flow, yes, that gap that we had based on release of working capital for a number of years that created a difference between earnings and free cash flow, we think, is largely closed, both with the working capital position stabilizing, but also the increase in CapEx, as you've seen around the strategic investments. We do expect net debt to go up next year with the spectrum spend that is noted around that mid $600 million mark. There is also another auction later this year in mid-band. And so there are calls on capital. But our focus is on continuing to drive earnings growth that allows us to drive -- to maximize the payment of fully franked dividends as we go forward. So as a business, we will look through that. And we're focused on driving medium-term earnings growth to support our ambition around maximizing fully franked dividends and seeking to grow them. Brendon, over to you.

Yes. Thanks very much and I appreciate the question, Eric. Look, like the read of the company. I think we've got some good momentum in the infrastructure space. So if I look at Amplitel, you can see some strong results for the year, an increase in the growth outlook, which Michael made comment on. And that's really underpinned by the $2 billion in contract signings that we've just recently completed in the Amplitel business. So that really underpins what we want to do in terms of tower growth tenancies. It also drives more into the services area where we look to provide a lot more of the augmented services beyond the construction of physical facilities. From an operating efficiency perspective, there's a couple of areas that we're focused on. While it's obviously managing the property side of things, that's where most of the cost base is, we've invested in that over the last year. And we're making really, really good progress on the operating efficiency of the land base. And then the other is -- and AI. And we have 2,000 digitals. We're right on track in terms of building out what we think will be one of the world's most advanced digital twin networks. And that creates a whole range of different possibilities from ordering right through to how we maintain all of those sites. On the fixed side, Vicki has already spoken about Intercity Fibre, super excited about that. I was in the U.S. last week meeting with a number of hyperscalers partners and the demand is there. There's just no question about that. But I think they're very, very pleased with the specifications of what we're rolling out. And I think more broadly, we see very good opportunities in backhaul fibre. We've rolled out in the last financial year, about another 3,000 kilometers of backhaul fibre. That's all related to customer demand. In data center and edge, we've got one of the best [indiscernible] facilities in the country that are fibred, that have power, resiliency. They're very secure. And again, we've seen a lot of interest in those with some exciting new deals that we've signed in that space. Obviously, satellite, we're working with all of the major satellite providers, obviously, a major partnership with Viasat. And then, on the operating efficiency side, we've continued with our copper recovery and recycling program, which has contributed over $50 million in EBITDA in the year. We did 17,000 tonnes of copper recovery. And then, as Vicki mentioned on the fixed network sites, that's an area that we will be heavily focused on from an operating efficiency perspective. And as we look to retire the copper services, then that gives us an opportunity to drive more divestments. We did 25 divestments last year. We've got more planned for this year. And importantly, as we retire those sites, we can reduce energy consumption and as well as benefit from the proceeds. So I'm super excited about the infrastructure opportunity. The trip last week to the U.S. just reinforced really what's coming at us in terms of demand for digital infrastructure in the next 5 to 10 years. It's going to be a very, very exciting space.

Thank you, Brendon. That was Brendan Riley, our CEO of Telstra InfraCo. I should have mentioned on the call today as well is Brad Whitcomb, our Group Executive, Consumer & Small Business; and David Burns, Group Executive of Telstra Enterprise. Our next question is from Entcho Raykovski from Evans and Partners.

Thanks, Nathan. I've got 3 questions as well. I'll ask them all together. And the first one is on mobile. I'm conscious that your mobile margins were particularly strong in FY '23. They were close to 45%. And I appreciate that hardware plays into this. But do you expect to be able to continue to expand out to FY '25. And just curious if you can comment whether that can offset some of the other margin targets you're walking away from today, particularly around fixed C&SB and NAS, so whether that can ultimately provide an offset at a group level. My second question is also on mobile where again, wholesale revenue growth was quite strong at 14.6% for the year. Are you able to comment on whether that's a result of repricing your wholesale agreements with MVNOs. Obviously, SIO growth was good. But is there a repricing element in there as well, which is driving ARPU higher? And if so, how far through that process are you so far? And do you think this will also lift the MVNO market longer term? And then my final question was on DAC. At the last set of results at the half year, I think you spoke about 3 more halves of ARPU compression. And Michael, today, you've mentioned ARPU declines to FY '25. Just interested on whether you think the market has gotten more competitive or whether you just view that essentially as consistent as what you said 6 months ago. And as part of that answer, if you can comment on how you see the impact of a potential valve as TPG merger on enterprise competition. I think that would be useful, given that you could well be facing a stronger competitor in that space.

Thanks, Entcho, quite a few questions to cover off. So let me start off. And then I think for this one, again, I'm sure Michael will want to comment on a couple of those and then Brendon and David. So firstly, on mobile, yes, I mean, it's not that long ago when we were talking about mobile EBITDA margins and getting them back into the 40s. And so to be at almost 45% for FY '23 is a pleasing outcome, particularly in a period where we're investing, obviously, in the rollout of 5G. So look, in terms of how we see mobile, as I talked to a little earlier, we've got very clear terms and conditions inside our mobile postpaid and mobile broadband contracts. We will continue to follow that very clear process around reviewing prices each year and look; we're still managing costs tightly. So in terms of margin, I am optimistic about our mobile margins continuing strong. In terms of our wholesale business, our multi-brand strategy has been really critical over the last few years as we've been very disciplined in how we have managed our overall portfolio of brands. And so yes, I mean it's very pleasing to see the growth in our mobile wholesale business. And we obviously priced on the wholesale side. And our wholesale customers make choices and decisions around their retail offerings. But we've seen growth in ARPUs across both our postpaid and our prepaid wholesale customers. And Brendon might want to jump in, in a minute just to talk a little bit more to give a little bit more color. But I think one of the things I reflect on with our MVNO business is just the strength of the partners we have in those businesses and what they bring to market with their brands and their channels to market. And as I said, that multi-brand strategy has been really key to underpinning the real performance overall of our mobile business. And we continue to be very disciplined in how we approach that with clear guardrails around how we manage those multiple brands across the business. In terms of data and connectivity, yes, you rightly picked up on the comments that Michael made. We do now see that data and connectivity ARPUs will continue to decline out into FY '25. I think it's fair to say we were a little bit more optimistic in being able to stem those declines, but they have continued. And rightly so, we are absolutely focused on making sure we retain customers, particularly retaining customers in fibre, and that can be on our own fibre or on NBN AE. So we're absolutely focused on that. That has meant going in and re-contracting customers and that has had a bigger impact on our ARPU than we were expecting during the half. Now as you point out, into in a business like ours, we have many big parts of the business. And some are performing more strongly, and there are some facing challenges. So when I look at it and step back from it, yes, absolutely, our mobile business is performing strongly. And that's why we remain absolutely committed to the underlying EBITDA and EPS ambitions, even though there are some ups and downs within the overall portfolio. The final comment I'll make before I pass across to Michael first is yes. We've read the media around the potential focus TPG deal that's being speculated on. Obviously, we don't know any details more than it's been reported into the media at the moment. The thing I would say; is both Focus and TPG are very strong competitors in the market today. So that's certainly something we're very used to dealing with. And so look, we'll wait and see what happens, whether there does end up being a deal, but as I said, very strong competitors today in the enterprise market. So why don't I, Michael, hand across to you to see if you want to add some comments?

Yes. I'll make some very, very quick comments. So yes, Entcho, we would expect some ongoing expansion of that mobile margin as we execute our strategy based on the customer demand that we're seeing. Yes, we have come off our commitment around mid-teens margin on NBN off-net as well as on NAS. And mobile will be one of the pluses against those minuses as will the upgrade in our Amplitel commitment to mid to high single-digit growth. On wholesale, we have -- and Brendon will talk to this. We have fantastic channel partners in our MVNOs with -- who have great brands, who have great customer access and who are interested in delivering real value. And I think that ARPU growth that we've seen both in postpaid and prepaid. Now when you look at the overall numbers, there's been a little bit of a shift to prepaid, but we are seeing underlying ARPU growth from those customers and it's really pleasing. On DAC, we did say at least 3 halves. We do expect that to go, a little bit further out. But I think the work David and his team have done and our ultimate objective was to stop the decline in SIOs. And one of the things that we're very, very pleased in is the retention of those T fibre and NBN SIOs and after a number of years of decline. So we're on track. It was a little bit sharper, particularly on DAC and calling apps than we had expected in enterprise, but the strategy is sound. So maybe, Brendon, first and then David could add some color.

Yes. Thanks, Entcho. Yes. Just a couple more comments on MVNO. You mentioned the income growth was just under 15%. EBITDA growth was over 20%. So I think that suggests we've got a pretty good model that works for us and works for our fantastic partners. We are through the process of re-contracting, more to go. We had ARPU growth in postpaid and prepaid in FY '23, and you can expect ARPU growth in FY '24 in both those categories.

And if I can, let me add a little color. Forgive a little bit of my tilts voice after effect. But I think Vicki and Michael have nailed most of the points. Vicki mentioned it is a very, very competitive market today. So we are responding to that. As Michael also highlighted, if you remember, in the first half of this year, of FY '23, we had a little around 600 size of loss in our T fibre area. We've reversed that into growth into the second half. And I think that gives us great momentum as we look forward into '23. And our continuing growth in the NBN Ethernet space has also been extremely strong. And we're getting great traction in the market against the competitors that exist today, let alone tomorrow. Our focus is around retaining the customer. Our focus is around improving that experience of receiving proposals from us through to the activation of that service where we know we've got some improvements to make. But we also know that when the customer is on a Telstra fibre service or a Telstra provided fibre service, they're extremely satisfied and strong customer experiences. So we'll continue to accelerate our focus on retention and satisfying the customer. And that's an incredibly important foundation for our NAS business, as our DAC business and so those 2 businesses are very linked to each other and so that retention is core and critical to us. Let me leave it there.

Our next question is from Darren Leung from Macquarie.

I just had 3 as well, please, and I might ask them all at the start. First one was just on InfraCo, please, that decision to retain it, can we get a little bit more color on whether it was due to pricing, lack of alternative use of capital, albeit it sounds like there's sort of sufficient capital opportunities at the moment? Or was there another strategic rationale as to why we thought about retaining it, please? And the second one was just in relation to mobile subscriber declines in the second half. Do you think this was purely due to the price increases? Or is there another or more to the external factors that we should be thinking about? And then the third one was just on the CapEx guidance and the CapEx profile to a longer term. Given all the comments around enterprise competition increasing, and obviously, you flagged the relationship with Starlink previously. Do you still think it makes sense to pursue the regional network, particularly in light of what's happened with the MOCN agreement, please?

Thanks, Darren, for those questions. Let me make some comments. And then I suspect Brad will want to jump in. He can provide a bit more color on mobile subscribers. And I'm sure Michael will want to talk more about the CapEx-related questions. So just on the InfraCo decision, as I mentioned, when I spoke, we absolutely thoroughly looked at all options. And it was something we worked through very methodically as a management team and with the Board. And what was very clear as we worked through that is we absolutely see opportunity in InfraCo Fixed, both in terms of that evolving long-term demand. So already very strong demand there today. But as we look at how those customer needs are going to shift and change. We really do see long-term demand and growth here in the InfraCo Fixed business. So as we step back and looked at that and we thought about as a digital infrastructure operator, what's going to be the best way to be able to firstly meet those needs, grow the business and deliver and maximize the best shareholder long-term value; it became clear that actually keeping the current ownership structure and that flexibility to work across the group and evolve our products and solutions to meet those needs was going to be important. It's also evident to us that as both Brendon and I have already mentioned. We've got the first 5 routes of our intercity fibre project well underway now. We think there are further growth opportunities out there, which we are exploring. And by keeping the current structure as is, as I said, it also gives us the ability to explore other operating and financial infrastructure partnerships, which will be started some of the work we continue to do as we build out those growth options. So really, it came down to what was going to be the best way to maximize the long-term value for Telstra shareholders. And it was a very clear decision that actually holding the current structure was the best way to do that. I won't comment on mobile subscribers. I'll cut across to Brad in just a minute to talk to that. And just the final comment I wanted to make. I'll just touch on the Starlink comment. And look, we're really excited. As I mentioned, we've got deals in place with 3 satellite operators. And what excites me is; I think the innovation happening in the satellite space is such a great complement to the mobile services we provide today. We know what Australia is like. It's a big geography with a small population relative to that. And so that ability to complement mobile coverage with something like some of the developments happening in the LEO space today. We're excited by. I don't think it changes the view of our investment in regional Australia from a mobile point of view. And when you look at where some of those capabilities are at, mobile is able to deliver far superior capabilities in terms of bandwidth speed, experience for customers. So I see it as very complementary. It's why we're very much at the forefront of making sure we're in the kick of those innovations and bringing to our customers those innovations as fast as we can. So it doesn't change my view in terms of investing in regional Australia in our mobile network. So why don't I go to Brad first and then to Michael.

Yes. Thanks, Vicki, and thanks, Darren. Yes, this is the second year through now with executing on our commitment to review pricing on an annual basis. And so we had an opportunity to learn from last year. While the pricing didn't go into effect on postpaid until July, we did announce the price changes in May. And as expected, that's when customers would get that notification. And they might consider whether they're on the right plan, whether they're on the right operator. And we did anticipate some churn stemming from that. And we did see that toward the back half of the fiscal year. So that churn was consistent with our plans. We've also factored in a bit of down planning where customers are looking for other plans within the Telstra family. Again, we've seen a little bit of that. But that's been quite modest actually a bit less than we had anticipated. If I think a bit more broadly around trends that we're seeing, we do keep a sharp eye on consumer sentiment. And of course, the economy is top of mind for most of us. And we have not seen that translate though into reduced footfall. So we're still seeing customers come into our retail channels, which is fantastic. We also do keep an eye on what's going on with other parts of the telecommunication spend and, in particular, hardware and handsets. We did see that actually grow this last fiscal year, both in terms of the volume of handsets and also the average selling price. But we are seeing a bit of a split where customers on the higher-end plans are tending to upgrade at a high rate and tending to take the very high value handsets in the market. And we're seeing customers, some customers that are on the lower-tier plans are tending to hold on to those handsets a bit longer to balance out their overall telecommunication spend. So we're confident at this point. We're not seeing anything that's inconsistent with what we ha planned for.

Michael, did you want to comment further?

Yes. I can comment a little bit on CapEx. I mean I totally agree with Vicki's comments around the role that satellite will play over the medium term in terms of adding additional capability. But the investment in regional in terms of terrestrial networks, it remains critical. Just in terms of CapEx, a couple of comments. One is our CapEx has crept up. And if you look at our guidance, it is -- the midpoint of guidance is a little bit higher this year again. And I think I'd cover 2 things. One is we continue to invest in the strategic infrastructure projects that we talked about as well as an increase in spend in Digicel this year as well. In our BAU CapEx, as we said last year, we said around $3 billion, we ended up being $3.2 billion. And as we had signaled that was an increased investment in rent. Rent investment remains important. And we're also in our BAU have some increase in our international subsea cable going into FY '24. The other point I would make on CapEx, it is one of the areas where we are seeing that inflation impact come through. If you think about the kind of things that we do in CapEx, such as buying technology and big construction work as well as software and software engineering, data engineering, and so forth. We're well positioned. But it is an area where we are seeing some of that inflation pressure come through.

Our next question is from Lucy Huang from UBS.

I've got 3 questions as well. Just in terms of kind of, I guess, you mentioned postpaid subs had slowed a little bit. There was a bit more churn, but within expectations. To what extent did that churn get captured across your prepaid base? So just wondering kind of whether the stops were captured within the Telstra ecosystem or whether the prepaid growth came from outside of Telstra subs. My second question is around fixed enterprise. So you talked about gaining more subscribers now on NBN Ethernet. Just wondering, if you can give us some color into the customer migration progress onto NBN Ethernet? Is it ticking up or expected to tick up quite quickly over the next couple of years and whether what's the margin impact as well when a customer moves on to NBN Ethernet. And then just thirdly, with prepaid ARPU, just noticed it reduced slightly half-on-half. So just wondering if you guys can give us a bit of color as to what drove that. And I guess starting into first quarter this year with the price increases, are ARPU in prepaid starting to grow?

Thanks, Lucy, for that. Let me make some comments and then David and Brad will probably want to jump in as well. So firstly, on postpaid subs, just in terms of that churn that we saw, particularly in that half, it was absolutely in line with our expectation. And it's an interesting time at the moment. I think we're seeing in FY '23 a year that has normalized back post-COVID. So as we look back, if you go back to, say, FY '19, the sort of churn we're seeing in postpaid is in line with that; so postpaid churn, not causing us a concern at the moment in line with expectation. In terms of how we capture churn off the branded business, of course, we do have our multi-brand strategy. That includes options like moving to prepaid. It does include belong. It includes our MVNO portfolio. So look, Brad and Michael might want to comment more on that. But I think those trends continue to track as we anticipate. And as I said, that multi-brand strategy remains really a key to how we execute and deliver to meet varying customer needs. And it's something we remain absolutely committed to. Just in the fixed enterprise space, David will want to jump in and he can give a lot more color. But I think the important thing here is when we talk about retaining fibre; where absolutely many customers are staying on Telstra fibre and we're also obviously have NBN Ethernet available, so both are available. Our sales teams and we're very happy to provide either to our customers. But we do still have a lot of customers staying on Telstra fibre as well. And I'll get David to provide a bit more color on that. And then on prepaid ARPU, I think that might be, Michael, a good one for you to pick up. So why don't we go to Michael first and then come back to David.

Yes. Why don't I cover off the predicted ARPU? It was down slightly. A lot of that -- a big chunk of that was driven by the release, the prepaid revenue release in the first half inflating that first half. Underlying ARPU, we're seeing really strong prepaid data growth driving ARPU in prepaid and we expect that to continue. And we've also had some price changes in our prepaid base in the second half of FY '23 that will flow through into '24. So maybe I'll hand to Brad just on mobile more generally to your question, Lucy.

Yes. Just to build on what Vicki said, we've got a very strong portfolio of brands. So as we've commented, again, this is a brief period of churn as a result of the price rise. We do see some customers leaving Telstra full stop. But we are capturing a number of those customers either in Belong or into our MVNO base. In terms of the growth in the prepaid, that's really a combination of additional customers coming on. As Michael talked about, we see more immigration opening back up and a number of customers coming in for the first time onto the prepaid. We've also had a significant increase in data consumption on prepaid, which has helped boost that up as well.

We'll go to our next question, which is from Kane Hannan from Goldman Sachs.

3 quick ones for me as well. Firstly, just costs given those wage negotiations that come through in FY '25, talk about how you see the phasing of the remaining savings across '24 to '25 million sort of what you've assumed in your guidance next year? Secondly, international segment and that step down in the EBITDA margin. Just talk me through what's happened here, whether there has been a positive offset elsewhere in the group? And thirdly, just underlying ROIC into '24. So you've called out the higher invested capital, higher D&A and obviously, the EBITDA guidance. But if I put that all together, do you think your underlying ROIC will be growing into next year? Or is that a '25 target?

Thanks, Kane, for that. Let me take a couple of those and then get Michael to comment as well. So firstly, on cost, in terms of how we're thinking about that ambition on cost, absolutely, it is more loaded to FY '25 than FY '24. And as Michael talked to some of those areas, where we're really focused on driving further efficiency, things like the benefits of digitization and retiring legacy IT systems, retiring legacy network infrastructure. That takes a little bit of time. Hence why, we see it a little bit more backended. In terms of, yes, we've got our AIs in place through to 1 October next year. And so, look, that will be something early next calendar year that we'll look to engage with our people and with our unions. We have a very constructive relationship. But that's going to be something we work through, through the course of next year. And one of the things that I highlighted, it's exciting to be leading such a capable team with engagement sitting at 80 across the organization, which is fantastic. So just on the cost side, yes, we would expect it to be more weighted towards FY '25. In terms of underlying ROIC, yes, as you picked up, obviously, Digicel came into the group in FY '23. It was in our closing invested capital, but not in the opening. And so that will create an increase in our average invested capital in FY '24. As Michael and I spoke to, we're looking to grow ROIC to '25. I think some of those impacts in FY '24 probably means it's more likely stable, but growing out into FY '25 is how I'm thinking about it, Kane. And then I might get Michael to explain the International segment because I know there's, a few changes and moves in that in the second half. So Michael?

Yes. So on international, if I exclude Digicel Pacific, which I think is clear, we've got Digicel Pacific came in. For the rest of international, we -- in the second half had some additional, from the restructure some additional internal revenue and some additional internal costs that played into the way that we're reporting profit there. That was a net detriment to EBITDA. If I exclude that and look at the underlying on a constant currency basis, exclude the impact of that restructure, in the second half, we grew as explained it at around 5.7%. So it is simply the impact of those, the internal. And then there is both revenue and cost, but clearly, there is more internal costs going into the international business.

I'd like to have David Burns to address Lucy's question which I think we missed on enterprise.

Thanks Lucy and Thanks Nathan. Lucy, just to expand on where Vicki went to, we have put out a whole new product range in the DAC space. We call it adaptive networks, that is getting great traction in the market. And we do very tightly manage what is on Telstra fibre or using NBN fibre. We're looking to grow both. Our results in the second half, as Vicki mentioned, were that we grew Telstra fibre SIOs. And we grew NBN Ethernet SIOs. So we grew in both spaces. And that is the momentum we're bringing forward into '24. And we look to continue with -- you did ask a question, I think, about the balance between what would be on Telstra fibre and NBN? And we are well within the parameters of what we've designed that business to go forward with. We get a good solid return from the NBN business, not the same as our Telstra fibre, as you would expect. But it still is a very healthy return to our business. And so that balance of continuing to use NBN as a part of our product portfolio is something we will continue to drive going forward.

Our next question is from [ Tom Bedell from Jarden ].

I'll just ask 2 if some of mine have been asked. First one is just a follow-up to Eric's question on ROIC. It's obviously a good outcome getting to that 8.1% in FY '23 and that you're looking to grow that under T25. So my question is just with the players across the industry targeting ROIC, what do you think is a sustainable mid-cycle ROIC? Do you have any sort of range in mind? I guess I'm just cognizant like Eric, that if it does get too high, you might open yourself up to competition. Just the second question on network sharing. Obviously, you're not going to appeal the Competition Tribunal's decision. But just -- could you still explore an infrastructure sharing arrangement with TPG, just in a deduction for example, one that might not involve spectrum? And also, does the fact that TPG in looking to sell significant amount of its own infrastructure at the same time, you could potentially do a deal with them if you're thinking about any possible future arrangement with them?

Okay. Thanks, Tom, for that. So firstly, on ROIC. Look, we've obviously got the ambition out there. It's pleasing to see ROIC, our underlying ROIC get to the 8.1% in FY '23, and we're seeking to grow it out to FY '25. We haven't put any ambition out there beyond that. The thing I would say -- as we all know, watching the industry closely, the industry overall has been sitting with ROIC below cost of capital. So there has obviously been a need across the industry to make sure we're delivering returns that allow us to sustain the sort of investment and deliver the high-quality networks and experiences for our customers. So we haven't put an ambition out beyond FY '25 that's seeking to grow to FY '25 on our underlying ROIC. In terms of network sharing, yes, we announced this week. We would not be appealing the decision on the TPG MCON deal. As we demonstrated through that deal, we think there are innovative ways to share infrastructure in the country that can get better outcomes for regional Australia and also deliver the right commercial outcomes for the industry players. Now, look, we're always looking at those opportunities. We'll continue to do that. And obviously, any time we look at that, we will take into account the moving parts that are happening in the competitive and industry dynamic. But yes, I think we demonstrated with our proposed deal that we are absolutely open to innovative infrastructure sharing. And it's something we'll continue to look at if it makes sense to deliver for customers and it makes sense in terms of overall returns for our business.

Our next question is from Roger Samuel from Jefferies.

I'll be quick with just 2 questions. First one, in fixed enterprise, I think you mentioned some target to grow essential sales going through your channel partners. Can you tell us your progress in leveraging your channel partners, any success stories you can share? And second question is on InfraCo Fixed. Is there any commentary you can provide on the inquiry into domestic transmission capacity service? Do you think there is a potential a relaxation of regulation for backhaul?

Okay. So Roger, just on your first one, it might be David, best to go to you just to give your perspective on channel partners. I know they're incredibly important in our enterprise business. Why don't we go to you first, and then I'll come back on the second question.

Yes, happy too, thank you, Vicki. And thank you, Roger. So we have traditionally long term being a more direct organization. We've used channel partners in a mobility space. But over the last 12 to 18 months, we have done a number of things with the channel partners, but also expanding into a digital. So we're looking for 3 routes to market. Telstra Direct, a channel partner to market and also using our digital engagement and Vicki highlighted some of that success earlier in her presentation. The channel partners are an incredibly important component of that. They cover us in regions and parts of Australia where we don't have as many Telstra personnel. And they also specialize around some of our customer sets, our industries and complement the way we go to market. And so they are a very strategic component of our coverage model. I believe we enjoy a superior go-to-market with our channel partners than any other of our competition in the Australian marketplace. And we intend to continue to develop and provide tools to that component. It grew. We don't publish the numbers. But it was a growing channel for us in FY '23. And we'll continue to use those partners in a strong way through '24 and beyond. As I said, it's an important part of our coverage model. They more than doubled our coverage capabilities to our customers and as I said, particularly in some of the areas where we don't have Telstra personnel. So it is a very important part of our model and it will be -- and it will continue to be so. Back to you, Vicki.

Thanks, David, for that. And Roger, just to come back on your second question. I mean my expectation is the regulation that you referenced is likely to continue in the same sort of form for the next 3 years. And I imagine it will be looked at more substantively over that period. So we would sort of expect more of the same.

Our next question is from Brian Han from Morningstar.

I have 2 questions. In mobile, I appreciate all the numbers are not out yet. But in the current environment, can you please talk about how you think Belong in your MVNO base are performing in terms of subscribers and pricing relative to the budget brands of the other 2 networks? And my second question is on Network Application Services, can you talk a bit more about why you're more cautious about that mid-teens margin goal by '25? And is margin improvement simply not possible until those calling applications revenue stabilize?

Thanks, Brian, for that. Why don't I make a couple of comments and then I'll hand across to Michael on mobile and David may want to add some comments on NAS as well. So look, as I've referenced a few times, we have a very thoughtful multi-brand strategy. And so we've definitely seen over the last 12 months as the market has returned much more than normal with inbound immigration and also inbound travelers. We've definitely seen, as you can see in the results, the growth in the prepaid and the MVNO side of the market. Look, we're pleased with the performance. We've made some choices and decisions. For example, you can see some changes in Belong pricing. There have been very deliberate decisions, ensuring it's in a sustainable place to deliver on the needs of those customers in that segment that it addresses. So I'll get Michael to jump in, in just a second, and Brad may want to add a little bit as well. But I'm pleased with the performance, as you said the broader numbers aren't out yet. But we're -- as we look at it, pleased with the performance in both Belong and our MVNO business. Overall, on NAS, yes, we're a little bit more cautious. As we said, we still believe that mid-teens margin on NAS over the longer term is the right ambition. And you're spot on, Brian, when you look at it, that decline from a calling point of view is a little bit more than what we had hoped for in this period and so that does put pressure on the overall margin. When we take calling out of the picture, we are actually -- we've got some good growth in our NAS business, excluding calling and excluding acquisitions we've made. Actually, our NAS revenue is growing at about 7.1%. And we are very focused on NAS that calling mix because it is relatively high margin. And as it comes off, yes, that is impacting the overall ability to get to the mid-teens. But outside of calling, the rest of the NAS portfolio, some very strong growth, particularly in those areas of cloud and security, but it is the calling impact that has the impact through to '25. So Michael, why don't I hand to you to add some additional comments?

Yes. Thanks, Vicki. On mobile, and Brad probably could have – would have some good color on this. We're really happy with the performance of Belong and for the MVNOs in our prepaid business. We think we've -- as you said, all the numbers aren't out yet. We would expect that we've done reasonably well on at least holding share and the ARPU -- underlying ARPU performances in those businesses, we think, are really strong with more to come, as we said, as we said next year. So Brad, did you want to add anything or?

Yes, just briefly, just on Belong, I'd say very pleased. We've seen both SIO growth and we've seen ARPU growth. In fact, we've seen ARPU growth across all of our sub-brands. So we're well positioned and pleased with the results for the year.

Our next question is from [ Scott Ryan from Remo ].

I only have one question actually, and it's just to do with Slides 25 and 26, please, and the outlook. So now that you've made the decision on InfraCo, I don't want to so much as on that. But looking at your fiscal '24 focus areas and your ability now to look forward with some certainty around InfraCo, I was wondering if you could tell us, just as you look around the globe and you travel on a 3 to 5-year timeframe. Are there any specific geographies or players with really interesting services that you seek to emulate for the medium-term?

Yes. Thanks, Scott. What a great question, taking the longer run view, actually, that's part of the work we're doing at the moment, looking out that 5-year and even 10 years out, what are some of the trends that are going to underpin and are going to be important for that long run sustainable growth in our business. Look, we talk to and engage with lots of our peers around the world as well as other technology companies around the world. And there's not a specific service I would call out that I've seen out there. But absolutely, I think the thing that everyone is talking about and certainly in conversations I'm in with business leaders here in Australia at the moment, everyone can see this incredible potential with this next stage of what AI will deliver. I think generative AI has certainly opened up AI now as very, very mainstream, not something that is sitting in the background. And so that's why, for us, things like our venture with Quantium, making sure we're at the forefront of how we adopt these technologies in our business, but also work with our customers to help enable them on the technology front. And I think it's important to remember as all of that demand for that technology is out there. It needs really great connectivity. So that foundational piece of all of the infrastructure and network that needs to be there, which goes hand-in-hand with the views and what I've talked about with InfraCo Fixed. It's such a foundational infrastructure for the country where we really do see where technology and services are evolving to, it's only going to generate more demand for that infrastructure, which we already have strong demand for, for today. So that'd be some of the areas I would point to. And obviously, we engage in keeping at the forefront of understanding what's happening, so we can bring those things to Australia as soon as we can and have Australians getting access to that technology right among the first few countries in the world as we did with 5G. Thanks for your questions, Scott.

Now we will also shortly move to a time of media questions. So I'd like any media on the call to register their questions. So we'll take our final analyst and investor question from Ian Martin from New Street Research.

Just wondering if you could give an update on 5G standalone, just the progress on rollout, what kind of CapEx it's requiring? And any indications at this stage on usage and utilization? Is it all focused on the large enterprise and government customers?

Yes. Thanks, Ian, for that. As I talked about, yes, it's exciting to have 5G standalone rolled out. And absolutely, in terms of where the focus area for that is initially is in the enterprise space, for sure. That ability to be able to, for example, do a slice of the network that is secure, how we're applying that into private networks for our enterprise customers, and we're actually working through -- we've got several versions of that and some more versions to come. So absolutely, it's great to now have these advanced capabilities of 5G rolling out. It's hard to believe it's 5 years of 5G, but there's more to come with these advanced capabilities. So yes, very much, we see the first opportunities there in the enterprise space and engage with some of our key customers in that. We haven't actually split out CapEx on 5G standalone, but it's obviously contained in that overall CapEx envelope, whether mobile business does take the biggest share of that. So thanks, Ian.

We do look forward to engaging further with our investors over subsequent weeks and we do thank them for their interest today. As I said, we will now move to media Q&A. And after a short break, my colleague, Steve Carey, will say that. Thank you.

Thank you, Nathan, and welcome to the media that are joining us on the call today. We have Vicki and Michael that will remain here for questions. And our first question this morning is from Jenny Wiggins from the AFR.

I'm going to follow the lead of the analyst. I have 3 questions. Just in regards to keeping InfraCo Fixed and the reference to keeping it in an environment where inflation is quite high. I just wanted to be clear what you're referring to. Are you referring to inflation-linked income that you expect to derive from InfraCo's assets? Or were you referring to the fact that inflation is making it harder for you to cut costs in other parts of your business?

Thanks, Jenny. Just -- so very clearly on that one when I mentioned inflation linked or the inflation environment. Absolutely, it's talking about inflation-linked income within InfraCo Fixed. So InfraCo Fixed is a very big contributor overall to the Telstra Group. And it does have payments, for example, the NBN payments that are CPI-linked. And so in the current inflationary environment, yes, it's an important pillar overall to the earnings and cash flow.

Do you have -- can you give me a percentage of what percentage of that business have inflation-linked revenues?

Well, we can -- we do break out the NBN payments in results. And then I'm just looking for them now, Jenny, so you've got it.

So the -- if I could jump in. So the NBN recurring income out of InfraCo Fixed income of 2.566, I made a bigger page, it's about 987, I think.

Yes, that's right. So you can see that, Jenny, when you go into Page 49 of the slide pack that we issued this morning.

And did you actually get any bidders approaching you to buy that business? Any expressions of interest?

Look, I think it's fair to say. I mean, infrastructure assets, particularly digital infrastructure assets are, a lot of investors are interested in those. As I said, we looked extensively at various options, but we've absolutely made the decision that the right way to maximize value for Telstra shareholders is to retain the current ownership structure of InfraCo Fixed. And it puts us in the best position to be able to actually make sure we're evolving to meet those customer needs. We're seeing good demand today, and we expect that to grow more strongly and evolve further. And equally, we do see growth opportunities. And under the current structure, it still gives us the flexibility to explore operating and financial infrastructure partnerships.

And finally, one of your competitors, TPG, is getting rid of e-mail addresses that will no longer provide them as part of its broadband and wireless internet services. Does Telstra have plans to do the same thing to cut costs?

So actually, for our BigPond customers, we know how important e-mail addresses are. And in fact, we're quite a long way through at the moment an upgrade of our BigPond e-mail service to ensure that it's providing all of those features and functions that we expect today in an e-mail service. So no, we have no plans to remove our e-mail service.

Our next question comes from Tim Biggs from Fairfax.

I have 3 questions as well. First of all, on mobile handsets, phone manufacturers are now offering a lot more incentives to customers to purchase directly from them. And combined with the slowing upgrade cycle for many customers, could you talk a bit about whether this impacts hardware sales at Telstra, especially as we're about to have a new iPhone next month?

Yes. Thanks, Tim. Look, we've seen for several years now, actually, we changed our mobile proposition. So we slid apart the service, your ongoing monthly service contract and your hardware. So customers can choose to buy hardware from us and pay over time or buy it outright. In fact, over the last 12 months, we saw our handset revenue grow by 12%. So we saw both volume up and the average retail price that customers were willing to pay for new phones also increased slightly. But I think we're seeing that growth right across the board, where consumers are choosing to buy from retailers, buy direct from handset manufacturers. So we have that flexibility available to make sure customers have that choice. And as I said, we did see growth over the last year, about 12% in our hardware revenue.

On broadband, I know it's early to comment on NBN's revised SAU. But do you think the potential for consumer broadband prices to come down at the higher capacity plans over the next 12 months?

Yes. Look, so NBN, obviously, lodged their latest version of their SAU yesterday afternoon. I haven't been through it yet in detail. It's a little over 400 pages, I think. And so we will carefully work through that and understand it. There are a number of moves inside that in term of the wholesale pricing, and we'll need to consider that as well the rest of the industry and determine what all changes might need to make as a result.

And finally, does Telstra still have plans to enter the energy market and potentially introduce mega bundles for phone, internet and energy?

Yes. So you're right. We built the capability to be able to do energy retailing. We've made the decision through the course of last year and then in FY '24, we won't scale up our energy retail business in FY '24, and that's really been a decision around needing to make sure we're prioritizing the things that are going to have the biggest impact on customers. And so we have prioritized the migration of our consumer and small business customers into our new digital environment, which is where we've built the new energy retailing capability. So we won't be scaling it up in FY '24, but it is a capability we have built, and we will come back and review as we progress further on our digitization migration of customers.

Next up, we have David from The Australian.

Congrats on the numbers. I want to ask, firstly, just obviously, the headcount reduction last month of around 500. I wanted to ask, Vicki, if we can expect any more headcount changes or these current headcount levels and how they're sitting at the moment?

Yes. Thanks, David, for that, and thank you for the comment on our results. Look, we did announce some changes last month, where we did flow through some changes in terms of impacts on our employees and their decisions, I can assure you, I never take lightly. Under T25, unlike T22, we don't have a headcount out number. We obviously are always looking to drive the right level of efficiencies. And as our business changes, for example, we retire legacy systems and products that does flow through to changes at times. Now the commitment we made to our teams is that we would do that early in the financial year, which is exactly what we've done for FY '24. So I'm not expecting any other major impacts during the course of this year. It's important to remember as well, as a couple of years, we have brought our consumer and small business calls back onshore, and we have bought back our retail stores. So we have seen growth in our employee numbers over the last couple of years.

Just had one more question, if that's okay. I know in Europe and the U.S., there are proposals and discussions over making streaming providers like Netflix, for example, pay for network upgrades and some telcos and providers over there say, that's the right thing to do. Do you have any perspective? Is there any sort of discussion happening at Telstra at the broader retail level about fighting to make streaming providers pay the network upgrades for example?

Yes. Look, I've been watching closely and speak to my peers in other parts of the world, David. And as you said, particularly in Europe, I think it's a very different conversation. That's not something that we've seen here in the Australian environment and not something that we're actively pursuing at the moment.

Next up for questions, we have Josh Taylor from The Guardian.

Just on the -- we've seen, obviously, I heard you talk about it before about the mobile, the expected sort of churn as a result of the price increases. At the time when you announced these, you kind of pended on invasion, increasing [indiscernible] across the business and everything like that. Do you feel that that increase in prices is also contributing to inflation? And separately, do you think your -- I guess, your 13% increase in profits is contributing in inflation to?

Thanks, Josh, for your question. So first thing I would say in terms of mobile pricing, if you look at the ABS CPI data, you'll see that telecommunication services have gone down in real terms over the last few years. So I don't see telecommunications pricing contributing to inflation. And obviously, particularly now customers increasingly rely on connectivity. And as you will have seen in our results as well, we continue to see great demand on our network, and we do invest a lot of money into our network to make sure we're delivering at that world-class experience, particularly on our mobile network. So yes, that does mean needing to make those choices and decisions to have pricing at a sustainable level to be able to invest and deliver that high-quality level of experience for our customers. So that's how I think about mobile pricing.

Can I also just ask, just in regards to the BigPond e-mail. It's kind of a dwindling supply of accounts now, isn't it? Because effectively, you stopped offering new Bigpond.com accounts in 2016. So you're kind of maintaining it for an ever-decreasing customer base, right?

We have a really engaged BigPond e-mail customer base. So they are very active users of it, Josh, which is why we made the decision to actually upgrade and make sure we have the right features and functions to be able to support their needs. So it's absolutely part of our broadband service for our customers.

[Operator Instructions] Our next question comes from Grahame Lynch from CommsDay.

I've got a question regarding the fixed consumer and small business division. The EBITDA margins have improved a bit, but they're still quite low at 3%, and quite clearly much lower from the rest of the business. NBN SAU, we'll see the price of your main products that you resell from them because you be still up in the order of around 10%. So what's your strategy to deal with an increase in costs from NBN in terms of maintaining and improving EBITDA in that area? And also, they're trying to migrate everyone up to fibre with the higher speed. So that's a big churn event evidently. What's your strategy for mitigating the impact of that?

Okay. Thanks, Graham. And yes, you're right. So when we look at our consumer and small business fixed side of the business. Look, the first thing I would say, you're right. Overall fixed [ NSB ] margin for the year, EBITDA margin was 3%. But I would call out particularly on our off-net margin, our NBN resale, we achieved an 8% margin, and that's up on 5% from the prior year. So that has taken a lot of effort to move those margins in the right direction. Now as you're aware, the NBN submitted their revised -- most revised up-to-date SAU last -- late yesterday afternoon. And so we've still got to work through that. Obviously, we'll carefully consider it. But as we step back and look at it, obviously, we'll think about all of the commercial levers we have in terms of how do we continue to grow consumer and small business fixed overall EBITDA. And that's what we spoke about today that we need to look at that portfolio in total, across brands, across technology types and look to grow EBITDA. That's absolutely our ambition. And you mentioned Fibre Connect. I'd say Fibre Connect is as an opportunity. I mean, we know for the customers that move across onto Fibre Connect, it is a good experience. And so we're excited about making sure we're supporting our customers to get the best possible broadband experience that can best suits their needs. So I see Fibre Connect as an opportunity. As you probably know, Graham, in terms of our mix of plans, we're a little bit lower than the market on our overall speed mix relative to the NBN total. So we again see that as an opportunity of getting customers onto those high-speed plans where it suit their needs and Fibre Connect is important in that.

And we'll now move to [ Eric Johnson ] from the [indiscernible].

Just 2 questions, if I may. Just the first one around the infrastructure business. Are you shifting your sort of thinking inside Telstra a little bit? Is that now becoming a little bit more of a growth opportunity than what you previously thought given where the data market is heading?

Yes. Look, Eric, we're really excited about the future of InfraCo Fixed. So it is -- you think about that business, it's long-term investments delivering long-term sustainable growth. And that's a really important underpinning to Telstra's overall objectives, particularly that sustainable growth over the long term. And as I talked about today, by really standing that business up and running it as a standalone business, it's become very clear the opportunity is there. And I would say, over the last year or 2, again, I'm more optimistic again on the opportunities there. We've started with the first 5 routes of our intercity fibre build. We see the trends that are happening technology-wise, the shift to the cloud, the rapid AI adoption, all of those things contribute to an optimistic view of long-term growth out of InfraCo Fixed. So yes, we're absolutely, the decision to retain the current ownership, we think puts us in the best position to be able to explore those opportunities and look to maximize long-term value for Telstra shareholders.

And if I just follow up on something a bit more broader, the macro view. So from where you're sitting and looking at Australia's economy over the next 6 to 12 months, is -- what's the expectation? You're optimistic, we can sort of avoid sort of that recessionary debt or this resilience there in the markets you operate?

Yes. Well, I watch all and read lots of commentary, Eric, as I know you do as well. I think I sit in a more optimistic camp. I'm hopeful that as a country, we can navigate through these next 6 to 12 months. Obviously, there's still a lot of uncertainty out there, but I certainly am sitting more in the optimistic camp.

Our final question registered comes from Joseph Lam. [Operator Instructions]

I just have a quick question. So during the call, you've mentioned that there has been significant growth in data on mobile phones. So I'm just sort of curious as to whether you can provide some insight on what's driving that data growth? And previously, you flagged that customer are [indiscernible] their handsets for longer. So I'm just wondering whether Telstra is looking to capitalize on that increased demand for data to make up for any sort of losses in revenue set perhaps, so any of the share in postpaid plans?

Thanks, Joseph, for that. I just -- I found the second part of that a bit hard to catch. I'm sorry about that. Would you be able to just give me the second question again?

Yes. So I was just asking whether Telstra is looking to capitalize on that increased demand for data on prepaid mobiles and whether that might be used to make up for any losses in your hardware sales [indiscernible] any of the churn on mobile device?

And look, yes, as I spoke to today, we're seeing incredible growth in terms of data on our mobile network. It was around 35% in FY '23. And you can probably imagine where most of it comes through. Video obviously drives a lot of demand on the network. And increasingly, I think people are comfortable using their mobile device often as one of their primary means of engaging with all sorts of content and social media, certainly in our household, my teenage daughters. They don't move far without their phones. And so we absolutely see that growth coming predominantly from those high bandwidth, high data using applications, particularly in areas like video. Obviously, we all work on collaboration tools today, things like Teams, again, those sorts of things, people doing that over their mobile devices as well. So many things continue to drive it. And it's fair to say, I think we're all increasingly dependent on our mobile devices and say our customers really valuing that high-quality network experience and being connected. Then in terms of overall, yes, we've seen strong growth in the prepaid market, and that's been both in growth in customers, but also growth in ARPU. And again, we're seeing prepaid customers data growth also increase. We have an approach to market where we use a multi-brand approach. We have multiple brands and products and choices for customers. And so, look, we're definitely seeing at the moment, particularly that prepaid space and our wholesale partners in the MVNO space. There is strong growth there in demand, and we're really pleased to be able to have an ability to have propositions and brands that can meet those various needs.

Thank you to all the media that have joined us on the call. There are no further questions, so we might wrap things up. Thank you all for joining our FY '23 full year results, and we will wrap things up. Thank you.