Telstra shares have sunk after NBN Co said it will temporarily suspend the national broadband network rollout so it can work on improving the quality of the service.
The company tasked with building the NBN says it will suspend the rollout of the hybrid coaxial-fibre (HFC) network for six to nine months, from December 11, so it can work on measures to make connecting and using the service better, and to improve its reliability.
“There will be a delay of the current rollout timing of new HFC areas while the company undertakes this work in both the existing footprint and areas not previously declared ready for service,” NBN Co said in a statement on Monday.
Telstra said it would assess the delay’s impact on its 2018 full-year outlook, but warned it will hold up expected payments from NBN Co.
“Telstra will keep impacted customers informed and discuss disconnection obligations with NBN Co and the Australian Consumer and Competition Commission to minimise customer impact during this period,” the telco said in a statement on Monday.
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Analysts at Citi said the delay in HFC connections would have a flow-through effect in delaying payments Telstra receives from NBN Co for connections using its network and estimated the result could be a fall of around three per cent in earnings per share for the telco this year.
“Telstra will now need to stretch its new dividend policy to the limit in order to pay 22 cents in FY18 in our view,” Citi’s David Kaynes said in a report.
Mr Kaynes said Telstra’s new policy of paying out 70 to 90 per cent of core earnings in dividends, plus 75 of net one-off NBN payments over the rollout period meant greater risk that Telstra had to borrow more to pay its special dividends before NBN funds came in.
Telstra’s shares closed two cents lower at $3.46 on Monday.
Nearly one million premises are ready to connect via HFC, and 370,000 have already connected.
NBN Co boss Bill Morrows said the improvement efforts “will take additional time” but he remains confident of having eight million Australian premises connected by 2020.
“There are so many elements of this industry transformation that we cannot directly control, but we are serious about improving that which we can,” Mr Morows said on Monday.
“This is a deliberate change to demonstrate NBN Co’s focus on putting the customer experience as a priority over all else.”
