Telstra Hikes Prices to Boost Earnings and Fund $800M Network Expansion

About Telstra Group Ltd

Telstra Group Ltd (ASX: TLS) is one of Australia’s largest telecommunications and technology company, providing a broad range of services including mobile, broadband, fixed-line, and enterprise connectivity solutions. Headquartered in Melbourne, Telstra operates nationwide with extensive infrastructure assets, including the country’s largest mobile network, which covers over 99% of the population. The company serves millions of consumer, small business, and enterprise customers through a combination of digital platforms, retail outlets, and partner channels. In addition to connectivity, Telstra offers managed IT services, cloud solutions, and cybersecurity products, supporting digital transformation across various sectors.

Strategic Pricing Shift to Fund Network Expansion

Telstra has announced a significant round of price increases for most of its mobile and fixed internet plans, effective from 1 July 2025. The changes come as part of the telco’s broader strategy to enhance network performance, boost earnings, and defend its premium market position, even as competition intensifies.

Most postpaid mobile, mobile data, and home and small business internet plans will rise between $3 and $5 per month. According to the company, this increase will support a major $800 million investment over the next four years to improve mobile network resilience, coverage, and security. Notably, the prices of the entry-level Starter mobile and internet plans, prepaid mobile services, and certain high-speed NBN plans will remain unchanged, reflecting a targeted approach to mitigate churn among price-sensitive customer segments.

This pricing strategy is expected to lift average revenue per user (ARPU) on postpaid mobile plans by approximately $2.40. With a blended average increase across 65% of Telstra’s mobile customer base, this supports forecasts of 3.7% growth in mobile service revenue for FY25 and 4.6% in FY26. Prepaid plans, which underwent substantial pricing revisions in FY24, will remain untouched, avoiding further implementation costs and preserving their competitive edge in a saturated market.

The increases also come amid cost pressures from rising wholesale NBN access fees. NBN Co’s decision to lift wholesale prices has triggered similar responses from other internet providers, though Telstra’s above-wholesale cost increases may enhance margins at the potential cost of modest subscriber losses. The company has stated that the incremental revenue will help support product innovation, including 24/7 network monitoring, 4G backup capabilities, and the rollout of satellite-to-mobile text messaging.

Investor Outlook: Margin Expansion and Dividend Stability

Telstra’s 12-month price target has been predicted to be raised from $4.25 to $4.90, implying a 9% upside from recent trading levels. Telstra shares rose 2.2% on the day of the announcement to $4.68, their highest level since April 2017, signalling strong investor confidence in the company’s pricing power and earnings outlook.

The telco currently commands a 45% pricing premium relative to peers, substantially above its historical average of 32%, underscoring its reputation for reliability and network coverage. This robust pricing power enables Telstra to pass through above-inflation increases without triggering widespread churn, an advantage that is increasingly important in a low-growth environment.

Earnings per share (EPS) forecasts have been upgraded by 0–4% for FY25–27, supported by the ARPU uplift and margin expansion. Telstra is projected to deliver stable dividends of 19 cents per share in FY25, rising to 21 cents by FY27. At current share prices, this translates to an attractive yield of 4.6–5%, reinforcing its appeal to income-focused investors. The $750 million share buyback program, coupled with a $350 million cost-out target by FY25, further enhances capital return prospects.

Risks and Competitive Dynamics

While Telstra’s strong brand and infrastructure provide a moat, risks remain. Competitors such as Aussie Broadband (ASX: ABB) and Superloop (ASX: SLC) are likely to capitalise on price-sensitive customers looking to switch to lower-cost alternatives. It is expected that Telstra’s net subscriber additions will slow to 109,000 in FY25 and just 11,000 in FY26. While manageable, this trend suggests the telco will increasingly rely on ARPU growth rather than volume expansion to drive top-line results.

There is also the broader concern of regulatory scrutiny, particularly as Telstra’s network dominance grows in the context of rising consumer costs. However, its significant investments in regional connectivity, digital inclusion, and ESG initiatives help position it favourably in policy discussions.

Telstra’s upcoming price increases represent a calculated effort to strengthen its market leadership, fund next-generation infrastructure, and enhance shareholder returns. The company’s strategic pricing leverage, disciplined cost management, and robust dividend profile point to a strong earnings outlook, even as it navigates slowing subscriber growth and intensifying competition. With further upside supported by capital management and technological innovation including satellite connectivity and improved security features, Telstra remains a defensive, yield-driven play in Australia’s telecommunications landscape.