Good morning, everyone, and welcome to our 2020 full year results presentation. Before we commence, on behalf of Telstra, I'd like to acknowledge the traditional owners of the lands we are meeting on today. For me, here in Sydney, it's the Gadigal people of the Eora nation. I'd also like to pay respects to elders past, present, and emerging. This morning, after presentations from our CEO, Andy Penn, and CFO, Vicki Brady, we'll be taking questions from investors and analysts, and then media. I will now hand over to Andy. Good morning, Andy.
Hi, Ross, and good morning and welcome everybody to Telstra's results announcement for the year ending 30 June 2020. Our financial results this year were in line with guidance. This is notwithstanding the challenging times we're all in and the financial implications of the continued migration to the NBN. We're also very well positioned as we pass the midway point of our T22 strategy. This morning, I will make some introductory remarks before Vicki will take you through the numbers in more detail. We'll then go to Q&A. Well, a lot has happened since we were together at our half year results in February. In fact, it's hard to conceive that that was only six months ago. 2020 is proving to be enormously challenging year for everyone, for governments, for businesses, for communities, and for all of us as individuals.
The emotional, mental, and economic stresses as a result of the COVID pandemic and the necessary restrictions that have been put in place are profound, and I personally, sincerely hope that you and your families are doing okay during this time. I gave a speech at the beginning of the year on what doing business responsibly would mean in the 2020s. Little did I know what was around the corner. However, this philosophy of responsible business has guided us through the last few months. Through this period of extraordinary disruption, both COVID and the bushfires, we have been challenged to adapt, to find new ways of supporting our customers, our people, and the country at a time of need. I'm proud of the way our teams have responded, particularly given they are dealing with the impact of these crises on them personally at the same time.
In saying that, please do not think that we have lost sight of our shareholders. Quite the contrary. Our decisions are as much about doing the right thing for our communities as they are about commercially, what is in the best interest of our shareholders and in the best interest of long-term shareholder value. Ultimately, we will never be successful for our shareholders if our customers, people, and communities in which we operate do not enjoy success, too. During COVID, supporting our customers has included temporary, unlimited data allowances for home broadband customers and additional data for mobile customers, as well as relief programs for small businesses and commercial and consumer customers.
Supporting our people has included moving 25,000 office-based staff to working from home, new processes to protect our field and store teams, pandemic pay for our casual employees, and pausing our T22 productivity job reductions to give certainty and security to our people. On the latter, we intend to extend this further until February next year for our permanent team members, because right now, giving our people further certainty will ensure that they are better positioned to serve our customers and drive value for our shareholders and support their mental wellbeing. Vicki will take you through the implications of this for our productivity program. However, please be assured, we remain absolutely committed to our AUD 2.5 billion T22 productivity target, and we will come back to these tough decisions in reducing headcount in February.
We have also brought forward AUD 500 million worth of CapEx from the second half of FY 21 into this calendar year. This is providing the economy with much needed investment at this time and supporting the acceleration of our 5G rollout, which has already been extended to cover approximately one third of the population. This is on top of the support we provided to Australians in the face of some of the most devastating bushfires this country has ever experienced. In total, our support for bushfire-affected areas and for customers, free mobile services for the firefighters, and repairing damaged infrastructure amounted to around AUD 44 million. For our shareholders, the board has declared a fully franked final dividend of AUD 0.08 per share, AUD 0.05 ordinary and AUD 0.03 special.
This brings the total dividend for the year to AUD 0.16 per share, and means we will be returning AUD 1.9 billion to shareholders from our FY 20 results. Despite this focus on responsible business, I know we do not always get it right. As I have previously advised, some years ago, we let down some customers in Indigenous communities. Since 2018, we have been undertaking a comprehensive remediation program to address this, including waiving debts, providing refunds, improving our processes, and providing additional staff training and cultural awareness. We are also cooperating with an ACCC investigation into our sales, complaint handling, and debt collection practices to resolve their concerns about potential misleading or deceptive conduct, unconscionable conduct, or false or misleading representations at a small number of our partner stores, that are stores that are operated by licensees.
We have made a provision of AUD 50 million in our FY 20 accounts for potential penalties related to this. The board has also reduced the variable remuneration outcome for certain executives by 10%, not because they did anything wrong, but because they were accountable for the areas of the business where these failures happened. This includes me, ultimately, because ultimately, as the CEO, there is not a part of the business for which I am not accountable. Responsible business is about understanding that the obligations that we have to our customers are not limited by the small print of our contracts, but are defined by our organizational purpose and values. When we get it wrong, we must acknowledge it, fix it, and take back accountability for the consequences. Just before I turn to results, a quick word on T22.
I mentioned a moment ago that we are now past the midpoint of our T22 strategy. What has been cemented in my mind during the last few months during COVID, is that the key principles behind our T22 strategy are more important than ever before. To radically simplify and digitize the business, remove customer pain points, remove legacy systems and processes. These have all been crucial in allowing us to successfully respond during the COVID restrictions. It has also highlighted that connectivity has never been more important. We have witnessed a huge acceleration in the adoption of digital ways of working, and this is crucial to a fast economic recovery. Continuing to deliver on T22, therefore, is fundamental to the transformation of Telstra and also the success of our customers. With that, let me now turn to our financial results. Our results were in line with guidance.
This is notwithstanding the impact of the bushfires, an estimated negative financial impact from COVID on underlying EBITDA of around AUD 200 million, plus the AUD 50 million provision for the ACCC investigation. The COVID impacts arise mostly from reduced international roaming and professional services revenue, increased financial support for our customers, and additional bad debt provisions. In terms of financial headlines, total income for the year decreased 5.9% to AUD 26.2 billion on a reported and guidance basis. EBITDA increased 11.5% to AUD 8.9 billion on a reported basis. After adjusting for lease accounting on a like-to-like basis, EBITDA decreased 0.3% to AUD 8.4 billion. Underlying EBITDA on a guidance basis, which excludes one-off NBN income and restructuring costs, decreased 9.7% to AUD 7.4 billion.
Excluding the in-year NBN headwind, underlying EBITDA grew by approximately AUD 40 million. This growth was at the bottom end of the range we guided, but it is after the COVID, bushfire, and ACCC impacts that I have already mentioned. Net PAT decreased 14.4% to AUD 1.8 billion on a reported basis. Capital expenditure reduced 22% to AUD 3.2 billion. CapEx was towards the top end of guidance, due to the decision to bring forward AUD 500 million worth of investment into the calendar year 2020, that had previously been planned for the second half of financial year 2021. As I mentioned earlier, the board has resolved to pay a fully franked dividend of AUD 0.08 per share, bringing the total dividend for the year to AUD 0.16 per share, in line with FY 19. Turning to our operating highlights.
In Mobile, we had a very strong year, and we added 240,000 net retail postpaid mobile services, including 86,000 branded services and 154,000 from Belong. The branded adds included a contribution from enterprise customers in the second half of the year, as they supported their employees in working from home. One of the features of the year was increased activity in the price-sensitive end of the market, as demonstrated through the continued strong performance in Belong and Wholesale. Wholesale added 347,000 services, while we added a further 652,000 IoT services and 171,000 prepaid unique users. In Fixed, we added 80,000 net new retail bundle and data services, including 79,000 from Belong.
Belong now has more than 730,000 services, making it one of the largest operators in Australia, in addition to Telstra, with more than 400,000 mobile services and more than 330,000 fixed services. On costs, underlying fixed costs were down AUD 615 million, or 9.2%, bringing our annualized cost reductions achieved under our productivity program to AUD 1.8 billion. Vicki will provide more detail on our productivity program in a moment. Although we were slightly short of our AUD 630 million target due to the decisions that we made in relation to COVID, I'm very pleased with the progress that we have been making.
One of the impacts of COVID has been on our workforce capacity, particularly in overseas locations such as India and the Philippines, which went offline due to extensive lockdowns. This has had an impact on customer experience. While we moved a large amount of this work online and to Australia, we are very conscious of the delays that some customers may have experienced in trying to contact us, and I wanted to apologize for those delays. We are not completely out of the woods yet, but fortunately, our T22 digitization program enabled digital engagement with our customers to grow substantially. By the end of FY 20, more than 71% of Telstra service transactions were via digital channels. This is up from 53% at the end of FY 19.
The new My Telstra app, which replaced the Telstra 24x7 app, was downloaded 3.7 million times within the space of just a few weeks. This acceleration of digital channels and the workforce capacity challenge we have faced offshore have provoked our thinking on our customer service model for the future. As a result, we will be investing even more in digital, including messaging. Under our T22 strategy, our aspiration had been to reduce the number of calls to our call centers by two-thirds by FY 22. That's a reduction of approximately 24 million calls on an annualized basis. With the acceleration to digital, we are already very close to that run rate today, 2 years before the end of the program.
This means that over time, we will need smaller call centers for our consumer and small business customers, and our aspiration is that by the end of our T22 program, all inbound calls from these customers will be answered in Australia. Today, we are already answering more than 60% in Australia. This, in turn, will enable our teams in the Philippines and India to focus on supporting our digital experiences. Not surprisingly, the challenges during COVID were reflected in our episode NPS results. Episode NPS has improved by two points in the first six months of the financial year, and we were on track to achieve our full year target. However, the impact of COVID saw episode NPS decline in the second half and end up down two points over the last 12 months.
We expect to turn this around in the coming period, and we have targeted a five-point improvement in episode NPS for FY 21. Despite the challenges with episode NPS, though, strategic NPS improved five points during the year, exceeding our target across both mass market and enterprise. This is consistent with increased results we have seen in our brand consideration and our corporate reputation measures, where, which are at all-time highs. In terms of other operational value drivers for the year, in mobile, we saw our lead indicator, transacting minimum monthly commitment, or TMMC, as we call it, increasing by AUD 2. In July, we updated our mobile plans with more data and other inclusions. We made the decision to not charge separately for 5G, but to include it in our top three plans, and we adjusted other pricing. This should add further momentum to TMMC in FY 21.
Across fixed and broadband and data and IP, we continue to face the economic headwinds from the migration of customers to the NBN, as well as price competition. The in-year NBN headwind includes an AUD 380 million increase in our network payments. NBN wholesale pricing remains the largest negative impact on our fixed business. As you know, I have, for a long time, advocated for lower wholesale prices and a change to the NBN pricing structure. Without some sort of long-term change leading to improvement in RSPs economics, the risk of retail price increases or reduced customer experience, or customers moving to other networks, such as 5G, will increase. In Telstra's case, the profitability of reselling the NBN is negligible at best, and that is not sustainable. Notwithstanding these comments, I do want to acknowledge and applaud NBN's response to COVID.
NBN acted swiftly to increase capacity to RSPs during this time at no charge, enabling RSPs to support their customers as they move quickly to work and study from home. Despite these challenges, we remain focused on providing a differentiated customer experience on fixed. This includes through the Telstra Smart Modem, which we now have in more than 2 million Australian homes, over 1/2 our customer base. We also recently announced boosts to download speeds and our Wi-Fi Guarantee. Strong Wi-Fi is a critical aspect of creating a positive internet experience. In pilot customer trials of the Wi-Fi Guarantee, we did not find a Wi-Fi coverage problem that we could not solve with our Smart Modem and Smart Wi-Fi Booster combination. Turning to enterprise customers, we were particularly pleased with our NAS and global connectivity results for the year.
NAS EBITDA grew AUD 233 million, with an EBITDA margin of 18%, driven by improved productivity mix and product mix and productivity. Global connectivity EBITDA grew by AUD 90 million from improved product mix, productivity, and one-off benefits, including foreign exchange. Encouragingly, our health business also achieved strong growth, with revenues up 12% and delivering positive EBITDA for the first time in May. COVID has reinforced the drive to digitization in healthcare and has dramatically accelerated newer technologies such as telehealth, in-home monitoring, and access to information directly by patients. It has also demonstrated the importance of high-quality, real-time health information for both clinical and health policy. Telstra Health is therefore strategically very well positioned in what is going to become an increasingly growing market. Turning to our T22 strategy.
As we pass the midpoint of T22, we have delivered or are on track to deliver three quarters of our T22 scorecard metrics. Against the first pillar of T22, we now have more than 4.8 million services on our 20 consumer and small business in-market plans. We have cut 35% of our enterprise products as we unravel complexity in this part of our business, and we are on track to remove 1/2 by the end of FY 21. Consumer and small business customers, as I mentioned earlier, digital channels now account for 71% of service transactions, including account management, prepaid product and billing-related inquiries. Digital sales interactions are up 30%.
Our loyalty program, Telstra Plus, has more than 2 million members, and we are seeing strong engagement with reward redemption rates increasing more than fourfold between the first half of the year and the second half of the year. Our consulting and professional services business, Telstra Purple, and extensive gaming offers have all been developed and are in market. Telstra also continues to lead the market in the major mobile industry network performance benchmarks. On 5G, we're not just leading undoubtedly in Australia, we are also a global leader. Telstra's 5G network is now live in selected areas of 53 cities and regional towns across Australia, and more than 10 million Australians either live, work, or pass through our 5G coverage every day.
In fact, our 5G network already covers one third of the population, and we intend to extend that to 75% of the population by June of next year. While 5G-capable handsets have not long been in the market, more than 210,000 5G devices are already connected to the Telstra network. This is before the launch of the iPhone, a 5G phone, which we hope will arrive soon. On InfraCo, the new organizational structure and operating model, which we outlined in our November investor day, has been implemented, and a heads of agreement between InfraCo and Telstra is in place for commercial, service level, and the operating arrangements. We are also well advanced on our asset-based financials and reporting for InfraCo as we seek to drive more value from these assets. More broadly, we continue to simplify our structure and ways of working.
We remove hierarchies and silos on top of redesigning our organization from the ground up and removing, on average, more than four layers of management. Since the launch of T22 in June 2018, we have cumulatively announced almost 20,000 role reductions across our direct and indirect workforce. We have recruited 1,600 new roles with new skills in new areas such as software engineering and cybersecurity, and some temporary roles in response to some of the workforce capacity challenges presented by Covid. As at the end of June 2020, our direct workforce was around 5,700 lower than two years ago, and our indirect workforce was 12,000 lower. Employee engagement is at an all-time high, improving 16 points in the year to 83, reflecting a concerted leadership effort across the business.
In productivity, we have so far delivered AUD 1.8 billion worth of savings, and we are on track to reach our target of reducing annual underlying fixed costs by AUD 2.5 billion by FY22. We expect to achieve around AUD 400 million of productivity this financial year, which is about AUD 100 million less than we had previously planned due to the decision we had made in responding to COVID to defer further permanent job reductions until February. Finally, we continue to monitor asset monetization opportunities that strengthen our balance sheet. Our announcement last week to sell our Clayton data center for AUD 417 million means we have announced over AUD 1.5 billion of our T22 ambition to monetize up to AUD 2 billion worth of assets.
We will continue to pursue opportunities in FY21, with a view to getting closer to AUD 2 billion. Before I close, I would like to quickly take you through our T22 scorecard. We have now delivered or are on track to deliver three quarters of our T22 scorecard metrics. Some measures are rated either amber or red, and I want to take a moment to explain why. Firstly, underlying ROIC. We do not now expect to achieve our T22 ROIC target of greater than 10% in FY23. Since the launch of T22, we have seen the introduction of AASB 16, which has impacted our ROIC calculations by around 1 percentage point. We have also seen our weighted average cost of capital reduced by approximately 1.5 percentage points.
We have revised our T22 ROIC target in FY23 to greater than 7%. Now, I know that this is a crucially important measure for investors, and so we're gonna take some time, and Vicki will take you through the detail of this later. Secondly, NPS. We are on track with strategic NPS, but as I explained earlier, our episode NPS results were impacted in the second half of the year. Thirdly, the building out of our new technology stacks is very well progressed. Like many large systems projects, and this one is large, having involved an investment of in excess of AUD 1 billion, there are a few things that, of course, have right-shifted, mainly in some of the product builds.
However, the enterprise stack is live, and in consumer and small business, agent-facing components and mobile products are live with significant improvements to order and processing times. Product launches onto the new stack will accelerate in FY21, enabling us to accelerate migration. Fourth, while active app users have grown by more than 300,000 in the last year to 4.3 million, it is below where we had planned to be. Having said that, the main reason for this is that customers are no longer needing to use the app to check their data allowances because our new plans have no excess data charges, which is good news for them. Fifth, we need to achieve momentum in average services per customer by targeting increased multi-product holdings, including through entertainment, mobile assurance, and gaming add-ons.
We have had a strong take-up of both Foxtel's new streaming services, Kayo and Binge, over the last few weeks, and this will make a difference. Six, we continue to lead in the key industry network surveys, all except the ACCC Measuring Broadband Australia report. Now, this report ranks ISPs on performance, including lines that are not capable of actually achieving the NBN speeds due to NBN constraints. So it's clearly not a good reflection of our ISP performance. In contrast, however, we have been ranked in the Netflix ISP Speed Index Survey in every single month for the last two years. Given we have now passed the midway point of T22, we have also added targets for FY 21 and FY 22 to the scorecard.
These additional targets support our FY21 priorities, including the digital sales transactions, Telstra Connect active users, Telstra Plus members, migration to in-market plans, Australia's largest 5G network, and the implementation of agile at scale, and they can be found in my supporting slides. T22 is critically important for us because it continues to position us well in this current period of uncertainty, and will create the platform for us to emerge strongly into whatever the new normal is. In that regard, for FY21, our key priorities are staying committed to simplification, completing our digitization program, because as you can see, this is making a real difference to customer experience and productivity. Realizing the value from our strategic shift in Telstra Enterprise with our adaptive networks and mobility products. Maturing our ways of working and further embedding our new operating model.
Extending our leadership in 5G and realizing the value from our strategic investments in networks. This is going to include launching targeted fixed wireless in the first half of this financial year. Ensuring InfraCo is fully operational and driving increased value from passive assets. And finally, in continuing to deliver our AUD 2.5 billion productivity target, including another AUD 400 million in FY 21. To summarize then, before I hand over to Vicki, the 2020 financial year was uniquely challenging, but also one where once again, it highlighted the importance of connectivity in society. It was a year that saw a huge acceleration in the digital economy, now critical to a fast recovery to the broader economy, and where Telstra has a role to play.
It was a year where we saw the value of our T22 investments to transform Telstra for the future as a simpler, more digital, and more agile business, built around its purpose and values, and a firm commitment to responsible business. It was a year in which we met guidance and maintained our dividend despite the challenging environment. We still have a lot of unfinished business to do to truly transform Telstra, but we look at the year ahead with growing confidence in our ability to deliver on these strategic ambitions. Our progress this year was the result of a combined effort of many people, including many of our dedicated employees. Despite the disruptions and the impact on them personally from COVID, every day, they have focused on serving our customers and keeping them connected, and for that, I want to sincerely thank them.
Thank you, and with that, I will hand over to Vicki to take you through the detailed financials before we open.
Thanks, Andy. I'm pleased to say that for FY 20, Telstra has delivered financial results in line with the guidance we provided to the market. We have maintained our dividend and also retained our balance sheet strength. This has been achieved despite ongoing financial headwinds from the NBN and the operational and financial disruptions caused by both the COVID-19 pandemic and Australia's summer of bushfires. We continued our strong momentum on T 22, which is delivering benefits for customers while enabling us to simplify the business and reduce our costs. With the impacts from COVID continuing to be felt by many communities and its ongoing effects on the global and local economy, we anticipate that we will continue to face disruption in FY 21. However, with T 22, we have the right strategy to deal with this.
Our conviction in the strategy and our proven ability to deliver on it enable us to look at the future with confidence. I'm particularly pleased that today we are able to provide guidance on a range of financial measures for FY 21. Turning to the details of our financial performance for FY 20, which you can see on slide 13. The numbers on the left of the slide are our reported statutory results. FY 20 reported income was AUD 26.2 billion, down 5.9%, and reported NPAT was AUD 1.8 billion, down 14.4%. As discussed previously, the implementation of accounting standard AASB 16 meant that from July 1, 2019, operational lease costs moved onto the balance sheet and below EBITDA in the income statement.
Given different accounting treatment of leases in FY 20 and FY 19, and our exit of mobile lease plans, the reported lease-adjusted columns provide a like-for-like view of our results and reflects the view we use when managing the business. A reconciliation is included in the appendix. The remainder of this presentation will focus on the reported lease-adjusted results. On a reported lease-adjusted basis, EBITDA was broadly flat at AUD 8.4 billion. EBITDA includes AUD 1.5 billion of net one-off receipts, AUD 246 million of restructuring costs, and AUD 380 million impairment on our investment in Foxtel. Underlying EBITDA was AUD 7.4 billion, down 9.7%. The largest reason for this decline was the NBN, where we absorbed around AUD 830 million of in-year recurring headwind. We expect FY 20 to have been the peak year.
The clearest view of the future financial performance of our business is underlying EBITDA, excluding the in-year NBN headwind. In FY 20, this grew around AUD 40 million. The underlying EBITDA decline also included a provision of AUD 50 million related to an ACCC investigation into our sales, complaint handling, and debt collection practices, which Andy referred to earlier, and an estimated net negative impact from COVID-19 of approximately AUD 200 million. This COVID impact was across international roaming, financial support for customers, delays in NAS professional services contracts, and additional bad debt provisions. Included in underlying EBITDA was a reduction in underlying fixed costs of AUD 615 million, or 9%. Turning to depreciation and amortization, which on a reported lease-adjusted basis, increased 2.4% due to a mix shift to shorter asset lives.
We expect D&A to decline by approximately AUD 300 million in FY 21, and by a similar amount again in FY 22, predominantly due to assets associated with NBN completion and legacy IT assets fully depreciating. Net finance costs increased due to the adoption of AASB 16, capitalized interest, and other non-cash items. Our interest on borrowing costs declined AUD 93 million due to a reduction in our average borrowing cost and lower net debt on a like-for-like basis. We expect to see the decline in borrowing costs accelerate in FY 21, thanks to recent refinancing at lower rates and lower net debt. Looking now at income by product, which you can see on slide 14. Excluding one-offs, underlying income declined AUD 1.6 billion or 6%. Half of this decline was due to net in-year NBN headwinds and lower hardware sales.
There is detail in the appendix on each of our products, but I will touch on the most significant points. Mobile income declined AUD 461 million in FY 20. This was largely due to handheld services decline, reflecting expected ARPU pressure, with international roaming and hardware revenue, especially weak during the second half. In postpaid handheld, SIO performance was strong, although weighted across our multi-brand offering, with a strong contribution from enterprise, as many customers transitioned their teams to work from home. Our lead indicator of postpaid handheld ARPU, Transacting Minimum Monthly Commitment, or TMMC, continued to show positive momentum. During 20, TMMC increased AUD 2 versus FY 2019. We had anticipated an increase of AUD 2-AUD 3. However, trading conditions in the second half were more challenging. Given recently announced plan changes, we expect a further increase in FY 21.
Reported postpaid handheld ARPU declined 8.2% in FY 20, largely due to five things. These were a decline in international roaming of approximately AUD 75 million, driven by restrictions imposed in response to COVID-19. The impact from a period of intense price competition in FY 19, washing through our customer base, offset by improvement in plans sold in FY 20. Lower out-of-bundle excess voice and data fees of approximately AUD 120 million. Dilution from a higher mix of Belong customers, despite Belong being value accretive overall. And finally, accounting for new plans which allocate more revenue to hardware. Excluding the decline in international roaming, which we estimate will not recover in FY 21, ARPU declined by 6.8%, which is in line with the expectations we gave the market at our first half result.
We expect reported postpaid ARPU to return to growth in the second half of FY 21. Turning to other mobile categories. In prepaid handheld, despite a tough Q4, unique users were up 7.6%, and average voucher value increased, with revenue stabilizing in second half 2020. Likewise, mobile broadband, which saw increased demand in Q4, is seeing stabilization in revenue sequentially after several years of decline. Our wholesale MVNO business, a crucial part of our multi-brand strategy, achieved revenue growth of 10%. In our fixed business, revenue continued to be impacted by NBN migration alongside legacy decline, customer initiatives in response to COVID-19, and operational disruptions. In FY 20, we added 80,000 broadband subscribers, with Belong accounting for all of the growth. We are still experiencing ARPU dilution as customers move to in-market plans, although the amount is narrowing.
Around half of our customers are now on in-market plans, and we remain focused on maintaining our premium through differentiated experiences. Turning to data and IP, revenue was down 13%. This was due to sharp declines in legacy calling, including ISDN. In line with the 2022 shutdown of ISDN, we saw termination of legacy services and migration to unified communications within NAS. Core data and connectivity revenues declined 5% due to price competition and ongoing technology shift. ARPU declines moderated versus FY 19, and we have seen growth in fibre and NBN, NBN services offset by legacy copper terminations. We have revised our data and IP split of revenue in the detailed product slide to provide improved clarity of trends.
Reported NAS revenue declined 2.8%, reflecting a continued focus on profitable revenue growth, lower NBN commercial works, and reduced discretionary spending in professional services in the second half. Revenue grew 3.8%, excluding low margin hardware sales and NBN commercial works. Turning to our operating expenses, which you can see on slide 15. We have achieved a significant reduction in costs in FY 20. Total costs declined 10%, and underlying costs declined 4.5%. An increase in NBN payments of AUD 380 million was more than offset by productivity. Underlying fixed costs reduced AUD 615 million. This was modestly below our target of AUD 630 million due to impacts from our response to COVID-19, including additional bad debt provisions of AUD 36 million.
We have now achieved an AUD 1.8 billion net reduction in underlying fixed costs since 2016, and remain on track to achieve our AUD 2.5 billion net productivity target. Cost out included a 12% reduction in indirect labor costs, which included the full year impact of FY 19 reductions. We also reduced indirect labor and service contracts by 11%, which was due to digitization, reducing customer support costs, and lower legacy network costs. Non-labor costs declined 2%, including reductions in energy and travel. We are targeting a further AUD 400 million of cost reduction in FY 21. This target includes the impact of our decision to delay productivity, T22 productivity job reduction announcements until February 2021, as part of our COVID response. We do, however, still anticipate some role reductions prior to this.
For example, where projects end or work is no longer required. In FY 21, there will therefore be an increasing focus on reducing indirect labor and other costs. Moving to EBITDA on slide 16. Underlying EBITDA declined AUD 794 million, whereas it grew around 40 million, excluding the in-year NBN headwind. We are pleased to have delivered growth in this figure, while also responding to the challenges of the COVID-19 pandemic in the second half. Mobile EBITDA declined AUD 250 million, largely due to lower services revenue, including lower international roaming, partly offset by improved hardware margin and lower costs. FY 20 was a big year of delivery.
We extended our 5G leadership and network differentiation, moved around 1/2 of our mass market post-paid customers to in-market plans, scaled our loyalty program, continued our multi-brand execution, grew digital engagement substantially, and reshaped our pricing across brands and channels. FY 20 EBITDA does not reflect the positive impact of these achievements. However, in FY 21, despite the continued impact we expect from international roaming, we anticipate growth margins will turn around at the end of this calendar year, as previously flagged, and mobile EBITDA will return to growth in the second half of FY 21. Fixed EBITDA, excluding one-off cost to connect, declined AUD 873 million. This includes a AUD 630 million revenue decline and AUD 380 million increase in network payments to NBN Co. These were partially offset by cost reduction. Our NBN resale EBITDA margin, excluding one-offs, is negligible.
Legacy margins have also declined with diseconomies of scale. These headwinds to fixed EBITDA are likely to continue in FY21. Greater than 80% of our mass market migrations to NBN are now complete, and going into FY21, our focus is on improving underlying economics through digitization, advocating for lower NBN wholesale prices, improving plan mix and increasing add-ons, and enhancing customer experience and differentiation. Turning to data and IP, where EBITDA declined 17.5% due to reduced revenue on high-margin products and a moderate reduction in costs. In a challenging market that includes NBN impacts, we executed a strategy focused on maximizing long-term economics. This resulted in lower CapEx, offsetting some of the EBITDA weakness. We will continue to evolve our offerings over the coming months. However, the broad financial trends are expected to continue in FY21.
NAS had a strong EBITDA growth due to our focus on profitable revenue, unified communications, and significant cost reduction. We do not expect the same level of cost reductions in FY21. EBITDA margins of 18% in FY20 were consistent with our mid-teens margin outlook. In Global Connectivity, excluding one-offs and in constant currency, EBITDA grew 10%. This was as a result of the continued pivot towards higher margin products and delivery of cost reductions. We expect continued growth in Global Connectivity in FY21, though not at the same rate as FY20, as the period has included one-off benefits. Other growth in FY20 includes improvements from media and health, and some one-offs, including software losses dropping out after the sale of Ooyala. Given the one-offs included, we do not expect this level of other EBITDA growth in FY21, although we expect to see continued improvement in health.
Turning to free cash flow, which you can see on slide 17. Free cash flow after operating lease payments increased 7.2%, largely due to lower CapEx, more than offsetting lower underlying EBITDA. CapEx has reduced it from FY19, despite us bringing forward some 5G spend, as announced in March. As expected, we saw a working capital movement of AUD -1 billion in FY20, largely due to increased handset receivables from the exit of mobile lease plans. This included a AUD 500 million working capital improvement in the second half of FY20 through inventory management. Moving to dividends. The board has resolved to pay a final dividend for FY20 of AUD 0.08 per share, fully franked, including an ordinary dividend of AUD 0.05 per share and a special dividend of AUD 0.03 per share.
This brings total dividends for FY20 to AUD 0.16 per share, fully franked, including ordinary dividends of AUD 0.10 per share and special dividends of AUD 0.06 per share. FY20 ordinary dividends represent a 99% payout ratio of underlying earnings. In determining the final dividend, board considerations included the importance of dividends to our shareholders, the objectives and principles of the capital management framework, the estimated impacts resulting from the COVID-19 pandemic, and our free cash flow, which is higher than accounting earnings. A full reconciliation of reported to underlying earnings is available in the appendix. The special dividend represents an in-year payout of net NBN one-off receipts of 66%, and we have returned 65% of cumulative net one-off receipts received to date. I know dividends are important to our shareholders.
Deciding the appropriate dividend is a matter for the board, and we do not provide guidance on dividends. Our focus is on driving the underlying earnings of the business, and our ability to do this is critical to the dividend outcome. We remain clear that, adjusted for recent accounting changes, our EBITDA, post the NBN, needs to be in the order of AUD 7.5 billion-AUD 8.5 billion to pay a dividend around AUD 0.16 under the 70%-90% payout ratio in our capital management framework. Turning to our capital position, as you can see on slide 19. Our balance sheet remains strong, as does our liquidity position. We remain within our comfort ranges for all our credit metrics. Net debt declined AUD 900 million in FY20, excluding an additional AUD 3 billion of lease liabilities recognized under AASB 16.
Under our T22 strategy, we have now announced over AUD 1.5 billion in asset monetizations following the recent AUD 417 million Clayton property sale. Our reported and underlying return on invested capital were 7.6% and 5.4%, respectively. We do not expect our FY21 ROIC to grow, and the anticipated COVID-related impacts contribute to this outcome. Based on our current outlook, we have revised our T22 ROIC target to greater than 7% by FY23. Several things have changed since we set our ROIC ambition as part of T22 in June 2018. We have experienced deeper competition across products and a slower return to growth, especially in mobile. In addition, AASB 16 was implemented, resulting in a one percentage point reduction in ROIC, which previously caused us to push out our target by a year.
In the same period, our weighted average cost of capital has also reduced by approximately 1.5 percentage points, bringing it to around 6%. Importantly, our revised FY23 ROIC target brings our ROIC back above our cost of capital. Over the long term, our ambition is to grow ROIC with the following considerations: An appropriate level of return above our cost of capital.... capital management framework, external benchmarks and competitiveness relative to peers, and delivering earnings that support our dividend aspirations. We will talk more about our longer-term ROIC ambition as we approach the end of T22. Turning now to FY21 guidance, which you can see along with the assumptions and conditions upon which we have provided them on slide 20. We expect FY21 underlying EBITDA to be in the range of AUD 6.5 billion-AUD 7 billion.
Within FY21, we expect underlying EBITDA to be stronger in the second half. We anticipate the first half to remain challenged, including by the ongoing COVID-19 pandemic and NBN headwinds. Our second half performance will be supported by stronger cost out and expected improvement in product margin trajectory, especially in mobile. Underlying EBITDA guidance assumes an in-year NBN headwind of approximately AUD 700 million. Details of the headwind can be found in the appendix. At the end of FY20, we estimated we had absorbed around 75% of the total recurring financial headwind created by the NBN. Based on our guidance, at the end of FY21, we estimate we will be over 90%. To achieve growth, excluding the in-year NBN headwind in FY21, our underlying EBITDA will need to be around the midpoint of the guidance range.
We estimate that in FY21, the negative impact from the COVID-19 pandemic will be approximately AUD 400 million on underlying EBITDA, or approximately AUD 200 million greater than our estimate for FY20. This impact is across the following factors: A decline in international roaming, where we have assumed no recovery in FY21, with an estimated AUD 200 million impact. Our decision to delay productivity job reduction announcements under T22 to February 2021, which contributes AUD 100 million. A further AUD 100 million of impact made up of delays and de-scoping of some customer contracts for NAS professional services in the first half and customer support packages. We have not factored in additional COVID-related bad debt provisions in FY21. We will continue to assess and monitor impacts. CapEx guidance is consistent with our capital management framework at a CapEx to sales ratio of approximately 14%, excluding spectrum.
This CapEx guidance includes investment in 5G, planned to reach 75% population coverage by June 2021. Free cash flow guidance excludes AUD 417 million of financing cash flow from the recently announced Clayton property sale. To conclude, we have delivered on our FY20 guidance and maintained our dividend. We've retained balance sheet strength and have issued FY21 guidance. Finally, I would also like to take this opportunity to recognize and thank our dedicated teams right across Telstra. I'll hand back to Ross for Q&A.
Thanks, Vicki and Andy. Chantelle, can we now move to questions, please?
Thank you, Ross. Your first question comes from Eric Choi, UBS. Go ahead, please.
Hi, team. Thanks very much for the questions and well done on balancing customer support measures versus shareholder returns so far. My first question is on the long-term ROIC. It sort of suggests EBITDA in the low to mid-sevens by FY2023. Can I just check if that math is correct? And if that's the case, it also suggests we're not expecting all of the AUD 400 million of coronavirus headwinds to reverse. Is that the case? Second question on the dividend. I wanted to test the hypothetical where we switched to a free cash flow-based dividend policy rather than EPS. My question is: How do we think about the ability to fully frank dividends, and how does this impact your debt ratio, comfort zones, and other credit metrics, if we were to go down that path?
And then my last question is just on your recent price increases. So well done again on trying to repair industry returns, but I, I guess Optus isn't following the term and, and Vodafone is beginning to tactically discount a little bit more. So my question is: How long do we hold on to these prices if competitors don't follow? And have we factored these price uplifts in the 7% ROIC target? Thanks.
Thanks, very much, Eric. Hang on, I'll make a couple of comments and then respond. On your first point about ROIC, sorry, EBITDA needing to be 7-7.5 to sort of achieve in excess of 7. I mean, essentially, we've previously said that to pay a 16-cent dividend, our EBITDA would need to be in the range of AUD 7.5 billion-AUD 8.5 billion. We would sort of say that, you know, that's a similar range that we would want to get into to deliver ROIC above 7% at the low end of that range, as well. So, I think the two are sort of interrelated and consistent. You know, we've got some movement below the line on ROIC as well.
So we obviously do not receive the one-off payments from NBN, you know, really post 2023, so that impacts below the line into NPAT, and therefore, ROIC. But on the flip side, we expect to bring D&A down reasonably materially as a consequence of our reduced CapEx. We expect to get some savings on our interest costs as well, and also, wouldn't expect to repeat some of the other things that have impacted the net PAT this year, such as restructuring costs and the impairment of Foxtel. So there's a bit happening below the line as well.
On the point about dividend, there hasn't been a change of policy, but there is a bit of a structural shift happening for us, which we expect to sort of sustain over a longer period of time between our cash earnings and our accounting earnings, where our cash earnings will be quite a bit lower than. Sorry, our cash earnings will be higher than our accounting earnings, and our D&A will be lower than our cash CapEx. And so that actually assists us in that regard. And that sort of goes a bit to your other point about supporting the balance sheet and the strength of the balance sheet and liquidity to be able to support the dividend.
And then in terms of the price, and I'll get Vicki to sort of add a bit of color on this as well. In terms of the price increases, look, you know, we believe, you know, particularly against the environment where ARPU have come down over the last three years, it's important to get value back into the mobile sector, particularly as we move into the 5G period and invest further into 5G. And so we're committed to our price increases. I mean, we, to be honest, activity has been sort of lower in the second half of FY 20, as you would have ordinarily expected to be the case, just as a consequence of, I guess, restrictions from COVID.
Having said that, you know, you see our-- you saw our net post-paid handheld subscriber numbers are very, very strong, I think, for the year when compared to the rest of the industry. Look, so we are committed to continue to try and, you know, improve the overall profitability within the mobile industry, at the same time as putting more value into our plans through the rollout of 5G, the extra data we're providing, the media offers we're providing as well. I can't comment on obviously what competitors will do, but what, why don't I hand over to Vicki at that point?
Thanks, Andy, for that, and thanks, Eric, for your questions. I would just as you look at that long-term ROIC target and thinking about where our EBITDA needs to be, I'd just reinforce what Andy said. There's quite a bit happening below EBITDA. So as I mentioned, we do expect a significant step down of around AUD 300 million in D&A in 2021, and approximately the same amount again in 2022. I would also say our finance costs, we expect to reduce given lower debt cost and looking at our maturities. And then finally, yes, restructuring as well. As you look out to 2023, we wouldn't have the restructuring costs we've incurred in 2020, and as Andy said, the impairment we took in 2020 as well. Andy's covered off, I think, well, on dividend. And just a final comment.
Yes, we've put our new pricing into market. At this point, we're really pleased with how customers have reacted to that. As we've said before, we think this is an important point, as 5G scales up, and we think it's really important, and customers know it's important. They really balance value, quality, and price, and, with our leadership position in 5G and our extending network differentiation, that's what we're really focused on and, and committed to, and our competitors will choose to react as they see fit.
Thanks for the color, Andy and Vicki.
Thank you. Your next question comes from Kane Hannan, Goldman Sachs. Go ahead, please.
Morning, guys. Just three from me as well, please. Maybe just to start, I suppose, just trying to understand what has changed to drive that ROIC target so much lower on a 2023 basis. But if I think about your mobile EBITDA, your NBN infrastructure payments, I think are AUD 4.3 billion for the full year. Given those price changes, your recovery in international roaming, the progression of the NBN rollout, that should drive some pretty healthy growth in, you know, those collective EBITDA of those two businesses. So it looks like the change in ROIC target is almost downgrading your non-mobile, non-NBN earnings by, you know, nearly 30%. So I suppose just trying to understand what's changed here in terms of your thinking, you know, since February.
Secondly, just following up on the targeted fixed wireless comments you made, Andy, just interested if you could give us a bit more color around those plans and then I suppose how we interpret the word "targeted," and then just in the impact, what sort of impact do you think that'll have on your ROIC for the group? And then finally, just the recent enterprise price changes. Just interested if you'd comment on what impact they've had on your FY21 guidance, I suppose, what they mean for the longer-term data and IP EBITDA. Cheers.
Thanks very much, Kane. Look, on the ROIC point, I think, you know, obviously, you know, we need to acknowledge that the 10% target that we were hoping to get to is not going to be deliverable. I mean, I think there's a combination of factors. I mean, we're delivering against growing our business in terms of customer numbers. We're hitting our product productivity numbers. We're on track in relation to our rollout of 5G. We're delivering 75% population coverage within the CapEx guidance that we've set. I think, you know, the bottom line is, you know, not just in the last two months, but over a period of time, you know, the outlook and the challenges got tougher.
You know, the overall estimated long-term impact of the migration to the NBN, you know, has increased, not necessarily in the last six months, but over time. You know, mobiles, which we've been pushing to try and turn around, as you see that activity in relation, you know, our price increases, you know, that's taken longer. I mean, we're optimistic that's gonna happen, but... And then, you know, we're seeing some accelerated disruption in sort of enterprise, which we spoke about at the 1/2 year as a consequence of SD-WAN, and that goes into the comment really around pricing in data and IP, and also some, you know, expected in UC, unified communications as well.
I guess, slightly accelerated by the COVID experience of everybody sort of going online and working and studying from home. So, it. I wouldn't say it's any one point, and then just contextually, yes, we had already called out a 1% impact from AISP, but that remained and, you know, our aspiration was to try and absorb that, but realistically, we're not going to do that by FY 23. And then, as Vicki mentioned, that the cost of capital has come down against the background of all of that. So, this target is for FY 23. It's not necessarily our long-term ROIC target. We will talk about that when we talk about what comes after T 22, but that's probably as much as I would say on ROIC for the moment.
On fixed wireless, the reason targeted, the choice of that word is fundamentally to recognize that fixed wireless is not necessarily the right solution for every customer. You know, it's, it's definitely a very viable and potentially attractive option for customers whose experience may not be the best, either because they're in a, perhaps a, fibre to the node area, where they've got a long lead line on their service and therefore, they're not receiving the best experience or, where they're getting a fixed wireless service but over an NBN network, whereas in fact, you know, a 5G fixed wireless solution could be more interesting. So we're definitely launching on a targeted basis to, one, make sure we're targeting the right customers. And then two, as we learn from that experience, as well.
Then in terms of pricing on FY, enterprise pricing in relation to FY 21 guidance, to your point, obviously not a huge impact in relation to FY 20. It will have an impact in FY 21, but we've not, I don't think we've called that out separately. With those comments, I'll hand over to Vicki.
Thanks, Andy, for that, and I'll just pick up that last point. So, Kane, yes, your question about the recent enterprise price changes, they are absolutely reflected in our outlook and our guidance. And I would just touch on, you know, the enterprise data and IP space has been one of those areas that has faced increased disruption and technology shift and NBN impact. And so, yeah, it is one of the parts of our business, undoubtedly, from where we embarked on T22, it has faced greater disruption and price competition than we anticipated, and that's reflected in the 21 guidance and our FY 23 ROIC target as well.
Thanks, guys. I mean, is there just, if we're following the Investor Day comments late last year around the data and IP outlook on a longer term basis, I think it would, you know, we wouldn't be expecting the earnings to halve from that AUD 1.5 billion. Just interested if there's any change in that following the price changes in these ROIC comments.
I'm not sure I have. I mean, Vicki, you jump in, but I don't think that our sort of strategic perspective has changed. There's no doubt, you know, there's some disruption happening in that, in the enterprise market, and there's a number of dynamics happening. There's over-the-top technologies, SD-WAN. On the one hand, we saw a more significant encroachment than we had originally expected from NBN into enterprise. On the flip side, you know, the importance of high quality and dedicated connectivity has only been heightened through COVID, and NBN have appeared to be sort of backing off a little bit in relation to enterprise.
And actually, we're also finding some of our enterprise customers that might have chosen to go to an NBN service are now actually having second thoughts, at least in relation to part of their networks, given the criticality of the connectivity. So, I don't know that it's changed that material, but I don't think, candidly, Kane, it's... These things are obviously hard to predict, so, particularly in the current environment. But Vicki, any further sort of thoughts from you?
Yeah. No, thanks for that, Andy and Kane. Kane, we obviously, we don't provide, longer run EBITDA outlook by, by the various divisions, and obviously, all of those things that Andy's just talked about are factored into that overall, change in our ROIC outlook for 2023. So, that's the only thing I would add.
Cheers. Thanks, guys.
Thank you. Your next question comes from Entcho Raykovski at Credit Suisse. Go ahead, please.
Hi, Andy. Hi, Vicki. I've got three as well. So firstly, if I can dig in a little bit more on that AUD 600 million COVID impact over the two years. Maybe to ask it more directly, how do you expect that to play out into coming back. So do you expect the majority to come back over time? Obviously, the roaming is a bit uncertain in the current environment, but just interested about the various elements, and whether you think they're permanent or not. And then secondly, mobile has fallen significantly in the period. I think it's down to 11.2%.
So sorry if I missed this, but can you talk about what you're seeing between Telstra and Belong, and whether that churn reduction is COVID related or whether you, you feel, down particularly strongly about your brand at the moment? And then just finally, can you comment on where the bad debt provisions are coming from? So is it consumer? Is it SME enterprise? And just looking through your accounts, there's been an increase in trade receivables past 91 days due, that's gone up from AUD 125 million to AUD 267 million. I presume you've seen this as appropriately captured.
Yeah, no, look, thanks for the questions. I might, I mean, just a couple of high-level comments from me, and then I'll let sort of Vicki, Vicki respond. Not the AUD 600 million. I mean, Vicki can take you through what that comprises, but, you know, giving it to the covers, bad debt support, support arrangements, some deferral on, some of the productivity elements, that they're all, in my mind, international roaming. They're all, in my mind, you know, pretty one-off. I guess the open question, and if anyone can give me some advice on this, I, I'll be grateful to receive it, is, is just the timing of, you know, when international-
Mm-hmm
Travel recovers to the extent we've ever experienced in the past. And so that's, that one's a bit hard to sort of predict, but, that's that. On mobile, I think, you know, we have seen a lot of activity at the bottom end of the market, and in fact, that was really-
Mm-hmm
the strategy that why we launched
Mm-hmm
Why we launched Belong into mobile in the first place was to make sure that we didn't allow Telstra branded to get dragged into the bottom end of the market or compete at the bottom end of the market. And I think that strategy is working well. We've seen more activity at the bottom end than we'd probably want to see. But you know, we are also lifting Belong TMMC, as well as branded TMMC, and we've made some further changes on pricing, and Belong lifting up the bottom end of their pricing plans as well. And then on bad debt, it's it is across consumer enterprise and-
Mm-hmm
small business. I think just, in terms of the sector, but I think... I don't actually know whether this translates into bad debt, but clearly the sector, which I think has been impacted significantly is small and medium business in particular, I think is, you know, feeling the heat. Sorry, feeling the pressure from COVID. But, Vicki, comments from you.
Yeah, thanks for that, Andy, and thanks, Andrew, for your questions. Just to talk a little bit more about the COVID impact. So, if I focus on 2021 and our estimated AUD 400 million, as you said, the roaming piece is uncertain, and it is AUD 200 million of that impact in 2021. Obviously, I think we all hope to get back to international travel at some stage, but it is unclear when that will be, and until that happens, obviously international roaming continues to be impacted. On the AUD 100 million of productivity impact from the delays in our T22 productivity job reductions, that is timing. Clearly, that's something we will come back to in February 2021, and so that productivity is not a permanent change. That is just a timing change.
In terms of the customer-related support packages and the impacts on our, NAS professional services, again, timing is uncertain, but we would certainly hope that they are temporary impacts, not, not permanent impacts. So that's the comments on, on COVID. In terms of mobile, yes, it's a, it's a good reduction in mobile churn in the second half. We have seen lower activity levels across the market, as you would expect, both activations and churn. And in fact, we've seen churn improve in branded and in Belong in the second half, just linked to obviously lower activity in the market. And then finally on bad debt, yes, we've taken an additional AUD 36 million in bad debt provisions. It is across the portfolio, so we did a, a full review of the entire receivables portfolio to assess potential COVID impacts.
I would call out this is slightly newer territory for us because we haven't historically had a correlation between macroeconomic indicators and our bad debt for our receivables portfolio. But in light of how uncertain things are and how significant the economic consequences, we did do that assessment, and that AUD 36 million is across the portfolio. It does weigh. Just given the size of our business, it does weigh more heavily to consumer and small business. And yes, you've picked up in the notes that increase in trade receivables 90 days plus, and yes, the provisioning we've done does factor that in.
Okay, great. Thank you. Just a quick follow-up. Andy, you mentioned that TMMCs for Belong have increased as well. Is it a similar sort of increase to that AUD 2 you've seen for the branded component?
Vicki, are we able to comment on that? I know it's lifted.
It did lift. We haven't talked specifically about the increase in Belong.
... Yeah, so look, it lifted and we have reduced—we've taken out some of the lower-end price plans as well.
Yeah.
So I expect it to lift further, but I can't make a further comment on the forecast-
Yeah.
Between Telstra branded and Belong.
It's an important point, Andy, the AUD 10 price point has been removed from the market, so we do expect continued improvement.
Okay, that's great. Thank you.
Thank you. Your next question comes from Craig Wong-Pan, CLSA. Go ahead, please.
Good morning. First question, just on your 103,000 postpaid subscriber net adds, how much of that was coming from enterprises that transitioned staff to work, to, sort of, to work from home? And then, can you also comment on, on whether that split was across your Telstra-branded or Belong-branded subs? The next question on your postpaid ARPU, just to kind of thinking around FY 21, so it sounds like you're gonna see a decline in ARPU in the first half, but then grow in the second half, as well as seeing improving margins. Could you just talk about what are the factors that, that drive that, evolution? Then the third question on Infraco. There was growth in recurring EBITDA, but a decline in legacy earnings.
I'm just wondering if you can say how much legacy earnings are still left in InfraCo that could roll off? Thanks.
Thanks, Craig. Well, that's the enterprise contribution. I'm pretty sure I'm right in saying it was... It's not Belong, it's all in the branded sector, Vicki, and it was in the second half only that made a contribution. So I think it was quite a bit of the net positive in the second half, but we also had net positive in the first half as well. In postpaid decline, again, Vicki will put a bit more color into this. You know, it's really a function of the flow through of the TMMC through into ARPU that ultimately is gonna lead to that turnaround in conjunction with the additional sort of headwind of roaming that will impact as well. In terms of...
I might go to Vicki on those two just so then I can go come back on the Infraco recurring EBITDA comment. But can you just restate the question? Because Infraco is obviously also impacted by the migration to the NBN by virtue of the wholesale revenues decline, the services declining.
Yeah.
Just again.
Yeah. I mean, it was really around the legacy earnings. So there was a decline in legacy earnings in InfraCo. I was wondering if you can comment on how much legacy earnings are still left in InfraCo that might-
Yes.
disappear over time.
Yeah, yeah. Okay, let me, let me come back to it. But Vicki, why don't you just go cover the first two?
Yeah, thank you. And thanks, Craig, for those questions. So just starting with your question in terms of our net subscriber adds. So yeah, in the second half, 103,000 postpaid handheld SIOs, 63,000 of that, 63K was Belong, 40K branded, and Enterprise was a strong contributor to that 40K in the second half, as Andy called out. For the full year, however, we did add 86,000 branded SIOs for postpaid handheld, so hopefully that helps clarify that one. In terms of mobile ARPU, and closely related to that is mobile margins and EBITDA returning to growth. As I spoke about at the 1/2, we had a lot of things pulling down on our ARPU.
One of those at the 1/2 was the pricing flow through, so it's the big thing that we will see shift. So TMMC is our lead indicator, ARPU, obviously the lag of that. And so the big change we see as we head into FY 21, and particularly into the second half of the year, is the flow through benefits of that higher TMMC into our ARPU. So, so that's the biggest contributor there. We see those other trends that I spoke to around Belong dilution, the out-of-bundle voice and data, the accounting change for the new plans, all being reasonably consistent. And yes, we're expecting the roaming impacts to all flow through.
Even with all that in, as I said, that change in terms of the TMMC flowing through is a big change and, that's what returns our ARPU. We expect to return our ARPU to growth in the second half, and that's the biggest contributor in terms of margin for the mobile business as well.
And then-
Andy, did you want to-
Yeah, just coming back on the Infraco one. If you go to slide 32 in Vicki's presentation, you can see that the proportion of legacy is effectively 20%. That's down from 27% in FY 19.
Okay, and sorry, just to follow up on that. So that 20% contribution from legacy, can that be transitioned to other earnings, or is that likely to be competed away?
No, I mean, effectively, it does roll off over time, but at the same time, setting up of InfraCo is what's creating us opportunities to monetize the assets in a different way, and so that's what Brendan's working on right now.
... Okay, thank you.
Thank you. As a reminder, it is star then one to register for a question today. Your next question comes from Sameer Chopra, Bank of America. Go ahead, please.
Morning. Hope everyone's safe. Just have two questions, please. One is on franking. I'm just wondering if you can give us some color on, you know, how the franking position of the company will change through FY21. I realize things like depreciation are coming down, which, you know, could see a higher tax paid. But if you could give us color on franking and how the franking balance will move to next year, that would be helpful. And then the second one is, what's the outlook for the working capital in FY21? Is there any sort of puts and takes we should be thinking about on working capital as the NBN disconnection payments come off? Thanks.
Thanks, Sameer, and thank you for kind comment on everyone's safety. Vicki, are you able to take Sameer's questions on franking?
Yeah. Yeah, absolutely. Thanks, Andy, and thanks, Sameer, for those questions. So firstly, Sameer, I would point you to note 4.1 in the accounts. I think it's page 54. You can see our franking balance there at June 2020. So we're in a good position at the moment in terms of franked dividends. Obviously, longer run, to pay a fully franked AUD 0.16 dividend, we need earnings per share at AUD 0.16, and that's where, as I spoke to, and Andy has spoken to before, we need underlying EBITDA greater than AUD 7.5 post NBN to support a AUD 0.16 dividend. So I think, you know, we're clear on that.
In terms of working capital, we do still expect some overall net small negative working capital impact in 2021, and that's largely still due to our decision to exit mobile handset leases. And so it's the lease receivables, handset receivables, that continue to have a smaller working capital net negative movement for us. So on balance, putting all of the pieces of working capital together, we will have a smaller net negative move in FY 21.
Thanks. Thanks, Vicki. And maybe if I can just ask one other question on CapEx. Andy, you've mentioned that, you know, there's scope there for the company to track towards 12% CapEx to sales. I realize that currently you've brought forward a lot of CapEx. Do you think that's still an ambition to track towards that 12% target?
Absolutely, Sameer. I mean, if anything, I've sort of been—I'm increasing my confidence on that because, you know, we've already got to 1/3 population coverage with 5G. We sort of brought forward AUD 500 million, which was, in a sense, it doesn't impact the FY 21 year in a material way because it's sort of bringing it forward from the second half to the first half, plus also a bit into FY 20. But that's enabling us to go hard to accelerate the rollout. So we'll be at 75% population coverage by the end of FY 21 within our, I think, roughly 14% CapEx to sales ratio. And then we said post the NBN, we would expect that number to trend closer to 12 than 14, and I feel more involved on that than previously.
I think, you know, the only thing that remains is a not so much a caveat to that, but just to be aware of is, you know, if fixed wireless was a very material sort of rollout, which I'm not necessarily anticipating, and, you know, that means would have to go very hard on small cells, then, you know, that's not necessarily factored in, but I'm talking about, you know, a very significant fixed wireless sort of approach. But that's, so that's the only other comment I would make. But no, look, I'm confident we will be able to move much closer to 12% over the next 2-3 years.
Great. Thanks, Andy. Thanks, Vicki.
Thank you. Your next question comes from Andrew Levy, Macquarie. Go ahead, please.
Thanks for the questions. My first question is, if you sort of land around the midpoint of your guidance for this year and you want to get north of AUD 7.5 billion, to sustain the dividend on the current policy and assuming that dividend policy holds, I'm sure that's the ambition anyway, to get north of that. Just wondering, Andy, if you could talk to the bigger buckets that you might be able to unlock over the next few years. Looks like corporate's gonna continue to be a bit of a drag, so net of that, you're probably gonna have to do AUD 700 million-AUD 1 billion of EBITDA growth. So, you know, between the unwind of the COVID impacts, mobile opportunity, maybe some more fixed cost savings.
If you could just talk to how you're thinking about, in large buckets, how you're thinking about closing that gap medium term. The next one's just on NBN profitability. First one is on the NBN headwind. How much of that would sit within fixed and how much would sit within data and IP in, in the coming year? And also on NBN profitability, I know it's not going to be profitable, but it looks like from the comments that you've made, that, you know, it's potentially loss-making and, and very, very marginal within Telstra. But if we look at, you know, at least one of your competitors, there, there is money that can be made on, on NBN if... even if it's not great. So I'm just wondering why Telstra can't get more efficiency in it than the end delivery?
Given its scale and where it's gonna land. And the third one, Andy, is just a high level question for you on corporate responsibility. You're obviously committing a bit of money to protect your staff through this period and, you know, have made a few actions in the national interest. So just wondering if you could make some comments, Andy, on balancing that against, I guess, direct shareholder interests and how that, those two can align in your view. Thanks.
Thanks, Andrew. So firstly, in terms of the first question, you sort of say, if we landed the midpoint of guidance, you know, how do we get to, you know, around AUD 7.5 billion of EBITDA? I think the first point is, Vicki's called out, there's about AUD 400 million worth of COVID headwind in the guidance outlook, so that's a big component. We've got more of the NBN headwind to absorb, on the one hand, but then we've got productivity, you know, built in that we believe that will offset that. And so that's, you know, that gets us to around about the 7.1, 7.2 sort of number, if I-- my math is correct there.
And then, we probably have some headwinds in, you know, the data and IP portfolio just in terms of market dynamics and potentially fixed outside of the NBN. But then we've got, NAS continuing to grow, international continuing to grow, and of course, the big ticket item is the mobiles business. If we can get, you know, with the AUD 10 billion revenue, of which, you know, there's obviously some hardware in there as well, but if we can get, you know, some ARPU growth, that's gonna be the material driver of that profitability. And then there are some things below the line which obviously are relevant for ROIC and dividend paying capacity as well. So that would be my comments there.
In terms of NBN profitability, if you look at our reported ARPU on fixed broadband, I think it's around AUD 71-75 or something like that. It's probably slightly lower in relation to NBN, as we're sort of still partway through the migration to that, and we've got input costs there of around AUD 45-AUD 46 already that we pay to the NBN. Now, yes, granted, we need to bring down our cost to serve and cost to connect, which we are doing. But I won't comment on the sort of competitors' profitability, but you know, even if we can improve the efficiency of that, which we will absolutely do, it still means that the margins are pretty small on reselling NBN.
I mean, and the fundamental problem is that if your wholesale price is 2/3 of the retail price, which essentially it is, that makes it incredibly challenging, whereas as a retailer, you've got to distribute and market the product, you've got to service it, you've got to manage billing, you've got to put in modems, deal with a lot of the complexities of the administration and the management, the service of NBN. So fundamentally, that that's the issue. But look, we will absolutely improve the efficiency and profitability of it, but I was just saying there's a bigger structural problem there as well, just given where wholesale prices are today and where NBN's ARPUs are intended to get to. And then on corporate responsibility.
Look, you know, fundamentally, the last thing I want shareholders to do is take away any type of message that we're not 100% focused on returns to shareholders. We absolutely are, very much so. It's just that I would make the point that we have to have in mind for the market and the environment in which we operate, and particularly for Telstra, because telecommunications is very much seen as an essential service. Many people feel it's a human right in terms of connectivity. In fact, the UN does describe it as such. We provide-- we're the only provider for many regional and rural communities. We have many customers who are vulnerable.
You know, during this period of time when being connected is more important than anything, particularly when vulnerable people need to be able to access welfare support and government, where many of those services need digital capability to be able to do so, it's critically important that we play that role. It will backfire for all of us if indeed we don't do that. And so this, I'm convinced this is the right thing for us to do over the longer term for shareholder value. But please, please be assured we are committed to our T22 transformation and turnaround. We are committed to the productivity. We will make the productivity changes. We will complete the program. We will follow through on the headcount reduction that arises as a consequence of that.
Ultimately, what we will have done is made a decision to essentially defer that for somewhere in the region of, sort of, you know, 6-10 months, which in the scheme of the broader program in the organization and in the current environment, we think is the right thing to do. One of the important, notable factors is our employee engagement has increased 16 points to 83, the highest levels that have been at Telstra in the last 12 months. Our corporate reputation has never been higher. Our brand consideration is higher. Undoubtedly, we are winning lion's share of net subscribers in the mobile market. We're able to make the price changes that we have. So-...
They're all contextually important factors in how we think about ultimately our job, which is to provide an attractive return for our shareholders. But as I said in my speech, we—I don't think we'll be able to do that in the long term if we put at risk our corporate reputation, our brand consideration, and our employee engagement. And that's the balance, and it's a tricky balance, Andrew, and I'm acutely sensitive to the audience today to which I'm speaking, which is our investors and, and, you know, they may feel, you may feel, on their behalf that we're not giving them enough priority. I really want to assure you this is, you know, we've had deep conversations about this as a board.
We fundamentally believe this is the right thing to do and in the best interest of shareholders, and the economic aspects of it are relatively minor, when you look at it in the context of the broader Telstra organization.
Yeah, no, thank you for that answer. I think you explained it well, and well done on where you landed. Can I just follow up? I don't know if you guys have the number, but on the NBN headwind, how much would fall into the fixed category-
Oh, sorry.
How much would be data and IP? Yeah.
Yeah, sorry.
Thank you.
Sorry, John. I missed that. Vicki, do you want to have a go at that?
Yeah, look, I'll jump in and grab that one. Andrew, we haven't split it out in terms of the fixed versus the enterprise impact, but the comment I would make, if you look at our mass market fixed business, we've now transitioned around 80% of our broadband customers are on the NBN. So the mass market transition, timing-wise, is ahead of the enterprise impact, in our view. And the only other comment I'd make, just going back to how we look at that NBN headwind, we obviously at the when we put that and we do those estimates, we looked at the decline in the fixed and enterprise businesses in the several years prior to the NBN, and then anything above that, so that was in the range of 3%-5%.
So any decline above that is part of the NBN headwind. So they're just the comments I would add.
That's great. Thanks for all the answers.
Thank you. Your next question comes from Brian Han, Morningstar. Go ahead, please.
Good morning. Has the strategic priority of the Belong brand changed at all? I would've thought the importance of Belong would sort of take a backseat slightly in light of the TPG-Vodafone merger, but it looks like it's now playing an even more prominent role. And also, Vicki, on NAS, even after adjusting for the AASB impact, it looks like EBITDA margin is still around 16% or above the mid-teens target. Has your view on that long-term mid-teen target, margin target changed at all?
Thanks, Brian. It's, it's Andy. Look, firstly, in relation to Belong, it's a, it's a good question in, in the sense of, to your point. I mean, we launched mobile-
Mm-hmm.
in Belong at the time, and we made the decision to, at the time of the move of TPG into the mobile market. And to your point, you know, the merger with Vodafone has sort of changed the dynamics of that a little bit.
Mm-hmm.
No, notwithstanding that, it's an important tool for us to participate in the sector of the market, which we may not necessarily have been previously the natural go-to and/or as well represented. It's also been helpful for us to try and mitigate some of the competition and the lower-end plans of our competitors, and also against some wholesale, MVNO or rather, MVNO providers, as well. So, I think it's a careful balance to make sure that, you know, what Belong is doing is adding value overall to Telstra, and ensuring that we protect the Telstra main brand, to maximize the growth of that, as well as sort of, as I say-
Mm-hmm
... manage the dynamics of the value end. So, the role of Belong, our strategy on Belong, hasn't philosophically changed. How we manage that dynamic, I think, is a function of the external market dynamics. And notwithstanding your implicit point that that the TPG, you know, TPG and Vodafone merger is now going ahead, the bottom line is we have seen very, very intense competition on mobiles and on pricing on mobiles, particularly, you know, down at the BYO end and the lower end over the last two to three years, and Belong has enabled us to sort of protect the Telstra brand a little bit from that as well. But as I-
Mm-hmm.
Also, as I mentioned earlier in the call, though, we have also taken lifting, taking some of the lower-end plans out of Belong's portfolio at the moment and lifting TMNC on Belong as well. On the second point about AASB and its impact on NAS, I mean, the strategic point that I would make is, yes, our... I mean, our target is obviously to maximize our EBITDA and grow EBITDA in the NAS business. You're, you're right, though, I mean, over the longer term, we would envisage that the EBITDA margin on that business is, you know, in or around the, the mid-teens, that we've done a great job in getting a bit better than that and really getting to that point. And, obviously, we'll wanna keep it there and maximize it to the extent possible.
But, that's roughly speaking, you know, the right margin when you think about the level of CapEx and what that business entails. But Vicki, comments from you?
Yeah, thanks for that, and thanks, Brian, for the question. So just on our NAS EBITDA margin, it is 17.5% for FY 20, and as you point out, yes, we restated our margins, given the AASB 16 impact. That was about a 1% impact. So if you think about mid-teens, even with that in, we're pleased with the 17.5%. And, as Andy just said, that's the sort of level we think is the right return for this business.
Thank you.
Thank you. Your next question comes from Ian Martin at New Street Research. Go ahead, please.
Thanks. I've just got a couple of questions if I could. First, Andy, you mentioned, agreements now set up with InfraCo, heads of agreement, SLAs, and so on. And, you know, the classic problem with this kind of separation issue is do you start to get, interests that move out of alignment with the overall group interests? So I just wonder what you can say about those, in particular, you know, the management KPIs, to what extent are they based on, say, InfraCo's ROIC targets and so on, versus, the group ROIC and EBITDA targets? The first question. And then, in relation to NBN pricing, you would've seen, the NBN result this week. There's some pretty strong hints that we'll be looking at another upgrade program, at NBN.
Possibly if they're upgrading fibre to the node, you know, that could be AUD 6 billion or AUD 8 billion. So cash flow is gonna remain very important for NBN for the next few years, and that, I think, removes the possibility of price relief at NBN, particularly CVC price relief. So I just wonder, you know, just how sensitive those T22 targets, EBITDA targets, and so on are to NBN pricing. I presume you're not expecting. Well, haven't built in any price relief into those kind of targets, and particularly the business pricing environment seems to have taken a turn for the worse lately. If you can comment on those two things. Thanks.
Yeah, no, look, thanks, Ian. Let me take the second one first. So just to... You're spot on. We have not assumed any sort of change to the wholesale pricing approach, or levels from NBN in relation to any outlook comments we've made, today or in our plans. And, you know, I did note the comments around the upgrades, and you've heard me say more strategically, I mean, that's fundamentally, that's absolutely what has to happen. Which is not a criticism in any way of NBN, but a telecommunications network is unlike other forms of infrastructure. You don't just build it and then you can all sort of pack up and, and then just use it. It actually requires constant upgrading.
I mean, even just since the announcement of the NBN and the decision of the policy, we've gone from 3G to 4G to 5G in mobile technology. 5G is actually 100x faster than 3G and 100 times more capacity, and it, that is analogous. So they will have to upgrade the electronics on the, where they've got fibre to the home. They will have to upgrade the HFC, upgrade DOCSIS 3.0, you know, maybe have to redo some of the cabling, you know, to build out further and, you know, and replace some of the copper, you know, upgrade the DSL. You know, That's what telecommunications industry is all about.
And so, you know, one of the things I've been advocating for is, you know, it is now an opportunity to sort of reset a 10-year vision for the telecommunications sector for Australia, because it is gonna be fundamentally important for the backbone of the digital economy. And therefore, in that, what we need is a sector which has got attractive, or rather, attracts investment, attracts innovation, provides, you know, reasonable returns on invested capital for the industry, and, you know, ultimately facilitates that successful environment. And that's going to include, NBN, obviously very, very materially. And yes, on the one hand, NBN's gonna need those cash flows to help support the upgrade.
On the other hand, if all it's gonna do is push retail prices up, 'cause that's kind of what's gonna ultimately have to happen, then that's a bad thing, as well. I get Steven's obviously working within the constraints that he's been given, so he can't necessarily change the economics without the government playing a role in that with him. That's why I think I've got to—you know, my encouragement is the government needs to look at this for the success of Australia's digital economy, not just singularly through the lens of the economics of the NBN. But to the point, we have not assumed any relief there or changes there.
On the InfraCo point, so just to be clear, so, essentially, Brendan, who's the CEO of InfraCo's remuneration, is fundamentally a function of the group's remuneration. So, you know, all of my GEs are rewarded in terms of their variable remuneration based on Telstra, the corporation's, returns and results, and then below their level, also, the people within the organization are similarly. They have an individual component as well, but they're heavily influenced to the overall total company results, as well. So that sort of addresses the KPI point.
The other thing I would say is that I'm acutely sensitive to the point that you've said, and in fact, in setting up of the agreements, we have a steering committee that has overseen this, and we have had external independent advice in relation to the establishment of that. And one of the things I was very keen to do early on was to agree the terms of reference and principles of that independent advice, and they report to me. They don't report to InfraCo, they don't report to anybody else in Telstra. They report to me, and their principles are to maximize the value of Telstra overall in setting up those arrangements and to ensure that, you know, where we've got strategic competitive advantage for certain reasons, by virtue of our infrastructure, we preserve that.
Where there's opportunity to maximize the value of our infrastructure without compromising that, you know, we should do that as well. And so I completely understand your point and you're right to raise it, and we have thought very deeply about that and put in place mechanisms to mitigate the risk of that happening.
Thanks, Andy.
Thank you. Your next question comes from Roger Samuel, Jefferies. Go ahead, please.
Morning, all. Thanks for the questions. I've got two. First one, just on Infraco. What's your current thinking around potential sale of your tower assets now that they are part of Infraco from the first of July? And also there's been some news articles around Optus tower sales, as well. Second question is on the 26 GHz spectrum auction, which is in March next year. So the government has set the competitive limit to 1 GHz. I understand that your competitors were pushing for 800 MHz. So with 1 GHz, do you think that's positive or negative for Telstra?
Thanks, Roger. Look, on the tower question, we don't have any sort of plans or otherwise to sell our towers. You know, our network is critically important to our overall strategic differentiation. Not all towers are the same, by the way, of course, and we currently share a number of towers within our network, and so we'll continue to look at ways in which we can optimize the value of our assets, but we're acutely sensitive to the strategic significance and importance of our mobile network and the differentiation it gives us. The point about setting up Infraco and the way in which we've set it up, as you know, is we've sort of set out Infraco as sort of a stand-alone business unit within Telstra, wholly owned. But also, and I think, you know, I did...
We did this deliberately when we had the investor call, and it was end of last year, but we presented that slide that said, "You should think about Infraco, not just Infraco and the rest of Telstra, but you should think about also the different asset classes with Infraco, within Infraco, so towers and fibre and pits and ducts and exchanges," and we're structuring those each separately and individually as well. 'Cause what that does, it gives us maximum flexibility to either take investment or, you know, manage each of those asset classes differently.
And so, we don't have any current sort of, communicated plans or otherwise to do anything further other than to continue to set InfraCo up in this way to maximize our optionality and to put ourselves in a position that, you know, were we to want to do something structurally, that we, we could do, either at the individual asset class level, but also at the overall level, which is, really against the background of ultimately whatever the plans for the government are in the longer term, vis-a-vis the NBN, that no decisions have been made, in that regard at all. It's to give us the, the optionality and the flexibility to do that. And a bit to the last conversation with Ian, is that this is a non-trivial exercise.
This is a major, major, major piece of work, and getting this right is crucially important, because if you ever were in that sort of situation, you wanna make sure you understand it exactly and structure it in exactly the right way. On the 26 GHz competition limit, so obviously you saw that overnight, and we, you know, we're very excited by 5G. As you've sort of heard me say, I think millimeter band wave is obviously an important differentiating element of 5G relative to previous mobile technologies. And one GHz is very much in line with what we were hoping would happen, and so we see it as a positive.
Looking forward to seeing, you know, the further detail and the interplay of this with the Apparatus license, which is at the end of this year, and, you know, the length of the leases and the structuring of payments and that type of stuff. But, you know, at that high level, we see this as good news. And, you know, all credit to the Australian government and ACMA in really, you know, continuing to push forward with creating the environment for Australia to be a global leader in 5G, 'cause it's gonna be a transformational technology.
Okay, great. Thank you.
Thank you. Your next question comes from Fraser McLeish, MST. Go ahead, please.
Great, thanks. Just again, on InfraCo, and I guess the kind of decision-making process and potential timing around the decision to do something there and split it out or sell down part or whatever. But, you know, if it's about creating shareholder value, that when your share's at this kind of level, there's a pretty strong case that you should be doing something sooner rather than later than thought. And, you know, if it's also about doing something with NBN down the track, you're gonna have to split it out one day formally anyway. So why don't we, you know, why don't we sort of bring that whole process forward, particularly if you've got it in a much better shape operationally now? Thanks.
Thanks, Fraser. Well, because I would point out that you describe it as a process. I describe it as optionality. And it's, they're two slightly different things, and where the process implies inevitably that we would separate our infrastructure business from the rest of our business and effectively, ultimately sort of not have control of it. And I'm not sure that necessarily is the right thing to do, and certainly we have not made a decision to do that. Now, the point about NBN optionality is If NBN privatizes and, who knows when that might be? It is. I think it's still right, I'm still right in saying it is the stated policy of both sides of government for that to occur.
Mm-hmm.
Were that to occur-
Mm-hmm.
Then, you know, we know that we would not be able to participate in that as a vertically integrated telco. That's very clear, that Rod Sims has made that clear, and the minister has made that clear. And so therefore, to give us optionality to do that, we would need to, as you say, separate those assets. But whether that's the right thing to do right now, I think is still not clear. And I think it partly depends on what the circumstances are regarding any privatization of the NBN. I mean, it, it may or may not be in Telstra's interest to participate in that. It's just hard to know until that situation arises and the detail of that becomes transparent.
But look, I still think, though, that what we're doing gives us the optionality to, you know, maximize the value of these assets, by setting up these structures. The most important thing is setting up these structures-
Mm.
in a way that were we to have external investors invested in them, that we've got the structures set up very carefully and thoughtfully, so that they don't compromise in any way our ability to run the business effectively. And I've sort of commented on this previously, that you know, Telstra spinning off its infrastructure assets is not like you know, for example, Wesfarmers demerging Coles or BHP demerging South32. This isn't. Our infrastructure assets are part of, an integral part of our business. This is, you know, it's within the core of our business. It touches every single part of our business. That's why it's such a complex exercise to set this up in a way.
And Ian Martin sort of pointed out that, you know, the risk of getting this wrong very much, and so that's why it's important to get it right. It's doable, and it's, and it's been done. And in fact, if you look back at the history of Spark and Chorus in New Zealand, you will see that they effectively set up what became Chorus within New Zealand Telecom, which then became Spark, I think internally for like a 3- or 4-year period before it was ultimately separated. And so, so anyway, that they're my comments. So no decisions at the moment. And but just continuing to focus on giving us the optionality, and in that regard, we're very well progressed.
Hello, Chantelle, it's Ross here. I think we might take this opportunity to hand over to my colleague, Nicole McKechnie. Thanks to all the analysts for their questions, and we'll move to the media Q&A. Over to you, Nic.
Great. Thanks very much, Ross, and thank you, Chantelle, and welcome to the media Q&A for our results today. Chantelle, without further ado, I think we'll just jump in. Over to you, please.
Thanks, Nic. Our first question comes from James Fernyhough, Australian Financial Review. Go ahead, please.
Hi, Andy. I've got two questions. Could you explain in layman's terms, i.e., avoiding analyst jargon, if possible, why you all failed to meet the ROIC target and how retail shareholders should interpret that? And then a related question on the AUD 7.5 billion EBITDA targets. What are the chances you will fail to hit that?
Thanks, thanks, James. I should say that, I mean, firstly, 7.5, I've got to be careful. And sorry, the only reason I'm being careful, I don't want you to sort of misinterpret this, is as you would appreciate, as a company, there are very strict rules and sort of provisions and things we have to observe in giving forward-looking statements. And we have to be very careful to distinguish between a forward-looking statement and a sort of a factual comment. And so AUD 7.5 billion is not a forward-looking statement, or a target, or a forecast. I just need to be careful to do that, and I'm not doing it to try and be cute. I'm doing it because we've got obligations in that regard.
It is more just pointing out that, to support a dividend in our dividend payout ratio, at AUD 0.16, and we know how important the dividend is to our shareholders, and, you know, therefore we take it very, very seriously. To support that, we would need EBITDA in the range of AUD 7.5 billion-AUD 8.5 billion. Now, we're committed to... We can see what the NBN headwind is. We're committed to deliver on our productivity, and we have a high degree of confidence, in that. We believe, you know, we're, we're doing well in terms of gaining customer numbers and either maintaining or growing our share, and we can, we can control all of those, so we can influence all of those levers.
What we can't necessarily influence is obviously any of the external factors and, conduct of our competitors or otherwise. And so, that's why we sort of try and lay it out in that way, so that, you know, investors and others can judge how they think. Well, we're positioned to deliver against that. But I can assure you that every part of management is absolutely focused on doing our best to ensure that we can. I mean, on the ROIC target, simply it is effectively a perspective of the market environment has been more challenging. And so therefore, it, the ROIC target just really rolls out from the profitability that the bottom line net PAT that the company actually is ultimately able to achieve.
What I should say is that the ROIC target is in relation to FY 2023. We're not talking about the longer term. It's not necessarily a change of perspective on the longer term, and we will, at some point, need to come back and talk to the market about the beyond T22 period. But right now, where we sit at the moment, it's hard to see how we would get to a 10% ROIC, and so we have a responsibility to ensure that the market's clear in terms of what that outlook is.
Thanks, James. Okay, Chantelle, next caller.
Thank you. Your next question comes from David Swan, The Australian. Go ahead, please.
Thanks very much, and, thanks, Andy, and congrats on the numbers. Telstra's kicked off a campaign to, you know, the 5G truth. Is there any material risk of, I guess, consumers either not taking up 5G services due to misinformation or destroying equipment? Can you kind of elaborate on the concern there? And, secondly, I wanted to ask, Stephen Rue at NBN said there'll be negotiations, imminently, sort of with the industry about, how it fits going forward. What will your position be sort of going into those negotiations? I know you've spoken publicly. How do you approach a private negotiation like that? What will you be aiming for?
Was your first point in relation to concerns over EME and health concerns on 5G?
Yeah. I noticed that you guys have noticed, have kicked off that ad campaign.
Ah, got it. Yep.
Yeah.
Yeah. Sorry. Look, you know, firstly, what I would say is that, you know, I legitimately, you know, recognize that some people have concerns around new technologies and, you know, concerns around radioactivity. I mean, that those concerns have been around for many, many years, but as has also the research that demonstrates that where the radio is used in mobile telecommunications, essentially there aren't risks to health. And the WHO and ARPANSA and, and many, many, many, many others... And in fact, just candidly, 30 years of history with using mobile telecommunications has demonstrated that those concerns are not founded. And of course, every time we come to a new generation of technology, such as 4G and now 5G, some of those concerns are reignited.
I guess in the context of the current environment, where the world is feeling pretty fragile with a very, you know, scary situation happening with the virus, it's understanding that, you know, concerns are even perhaps heightened in that environment. And so, what we want to do is to reassure people that those concerns aren't founded and that, you know, the research continues to show that mobile technology is safe, and that includes 5G as well as 4G. And because 5G is gonna bring, you know, some really exciting opportunities and benefits for people. So I don't really think it's going to be a serious headwind to the adoption of 5G.
As I said earlier on in the call with investors, a big inflection in, I think, the adoption of 5G will be the availability of a 5G iPhone, which so far has not yet been made available, as well as the rollout and the coverage of 5G. And so, I mentioned we're already at a third population coverage. We'll get to 75% by the end of the year. You know, I'm confident, therefore, we'll continue to see an increasing take-up, particularly when a 5G iPhone arrives. I don't know when that will be, because, understandably, you know, Apple plays their cards close to their chest on that one, but, I'm optimistic that it won't be too far away.
On the second point on NBN, look, I think that, I mean, I understand that David and his team are working under constraints which exist for him, which are ultimately dictated really by the government in terms of because it's a government enterprise and set up by the government for a particular purpose. I think we are at an important inflection point because the rollout is completed. We're on the cusp of a new wave of technology innovation. We've got 5G coming around the corner. And what's crucially important for everyone is that we see an acceleration to the digital economy, and telecommunications underpins that.
And so how I approach the conversation is to look at it through the lens of the bigger picture of what's the right policy and regulatory settings for the telecommunications industry, whether it's Telstra, NBN or anybody else for that matter, to establish, to ensure that we encourage investment, we encourage innovation, and we encourage the rollout of the best technology so that can underpin the digital economy for Australia. And so therefore, that means that looking at pricing structures, economic structures, that create disincentives or create biases for one technology over another. And I generally think, and I honestly think that, you know, Stevens is open to that as I am. And I think we've got to lift the conversation to a strategic policy level. What's in the best interest of Australia? How do we maximize investment in telecommunications and telecommunications innovation?
How do we become a global leader in that, where I think we already, you know, have the opportunity to be at the forefront? And then what are the inhibitors to get there? Wholesale pricing is one of them, because RSPs, very difficult for them to invest if they're not making money. Other things are, we've got regulation which biases one technology over another. And if wholesale pricing, you know, continues to be a challenge, that will lead to 5G starting to be an alternative to NBN. Is that the right answer? So I just think there's probably a better way to optimize the regulatory and policy environment for telecommunications, so that's how I would approach those conversations.
Thanks, David.
Thanks very much, David, and thanks, Chantelle. I understand we have John from News Corp, but I think you just wanted to give everyone a reminder about how to join, Chantelle.
Thank you. So it is star then one to register a question. You do have another question here from John Dagge, Herald Sun.
Hi, Andy. Hi, Vicki. Just two ones. I'm pretty sure they'll be for you, Andy. The first one was on the freeze to the job cuts, and I think you've answered it in your comments, but I guess the question was: Was there any chance that that freeze could be extended beyond February? And am I correct in reading that from your comments today on the call that, no, not really, that at February, you have to get back to the T22 push. And the second question was just the state of the economy and Telstra, and can you sort of reference it, how's Telstra tracking in terms of late payments and disconnections? Are they rising? And also consumer preferences for handsets.
Is there any movement of people, say, downgrading from or seeking out cheaper plans and downgrading from premium handsets to sort of mid-range or cheaper ones? Thanks.
Hey, thanks, John. Look, you're right. We agonized over the, as you can imagine, over the decision on job reductions, because we do need to continue to transform Telstra and move us to a much more agile, simpler, flatter organization. We've made a lot of progress, but coming into COVID, we're probably about 75% through the job reductions aspects of that, and we agreed to put that on pause, or agreed, we decided to put that on pause.
Mm-hmm.
We thought that was the right thing to do for our people, but also, as you heard me say, for our shareholders as well. We made a further call, just given you know, the continued impact of COVID, to extend that through to February, but we really cannot extend it beyond February. We have to come back to these tough decisions, and we will come back to them, and we will make them because we need to complete the T22 transformation journey. On the broader sort of economic questions, of course, we are an essential service, so people need connectivity now more than they ever do. But we do see, you know, the impacts in the economy through the lens of our business. You talked about late payments.
I'll ask Vicki maybe to comment on some of the bad debts, types of experience, et cetera. But I mean, we sort of probably not so much downgrading of handsets. We absolutely, we've seen handset sales in the last six months down about 20% on the previous six months. We sell about just over 2 million handsets and mobile devices a year. And so we're down in the second half, compared to the second half last, probably just over 200,000. So that's reasonably material. I'm not sure we're seeing a massive sort of change to the device choices. One of the things that we've I was talking earlier about was 5G.
I mean, one of the important things with 5G, the other thing that will be an accelerant to 5G, is that we see second generation chip handsets coming into the market now and going forward. That will bring down 5G handsets to potentially in the sub-AUD 1,000 level. So that will open up opportunities there for, for customers. I mean, we often sort of look at the economy through the lens of the footfall into our stores. That's obviously very hard to take anything meaningful from that at the moment, just given the impact of, of COVID. But initially, we saw footfall down 50% in the early stages, back in sort of April, the early stages of lockdown. We saw it kick back up almost to pre-COVID levels shortly after that. But of course, then with restrictions, particularly in Victoria, that's down again as well.
So look, that's probably some of the color I can provide. Vicki, anything sort of more from you on how we're seeing that through the lens of bad debts, late payments type of thing?
Yeah, and I think, Andy, you know, we've been very focused on helping support our customers through this period. As you said, it's from a consumer customer all the way up to a large enterprise customer, connectivity is so important. So we have, we have had measures in place to help our customers through from a hardship point of view and from hibernating business services. Our experience to date, when you look at our receivables portfolio, is really, the greatest pressure is appearing in small business, not surprisingly, given the extent of the impact for small businesses of the pandemic. And, we did take an additional provision in our 30 June accounts of around AUD 36 million, additional bad debt provision.
Not that we've experienced that bad debt yet, but as we did our assessment for the end of our financial year, we did take that into account and add that to our bad debt provision. That'd be my comments.
Great. Thanks, John. Thanks, Vicki and Andy. Chantelle, I think you next up have Zoe for us from the SMH.
Hmm. That's right. Go ahead, please, Zoe.
Thanks, Andy, and Vicki. That was great. Just a couple of questions from me. The outlook looked quite optimistic, but what if the pandemic continues to grow? We've seen outbreaks that can happen in Victoria and New South Wales. How, how does that affect Telstra's overall agenda and outlook? And the second thing is just on, I think, Andy, you mentioned the launch of targeted fixed wireless services. Is that an indication that you're looking to take on NBN Co in some areas?
Thanks very much, Zoe. Yeah, I think we're all very concerned, obviously, about the pandemic and how it will, you know, continue to impact us all, and the society and, you know, what second and third waves look like. I'm not an expert by any stretch of the imagination on that. You know, I want to acknowledge that, you know, I think our political and other leaders are responding, you know, decisively as best they can to that. So I think that we're all doing everything that we can. Look, ultimately, though, what it has done is it's just reinforced the importance of connectivity, and the digital economy, because that's...
You know, for many businesses, they've had to rely on that in response to the restrictions that have been put in place, and that's only gonna continue. So while it will continue to affect the way in which we work, and it'll impact some of our workforce capacity things, I think fundamentally underlying it, it's gonna, you know, mean that our services are gonna continue to be in demand. Now, obviously, we're going to need to try and find ways to support customers who need different levels of service because their businesses have been impacted, but similarly others need more.
And so, you know, I'm confident that we do we have had some economic impact, but that Vicki's called out AUD 600 million over a two-year period, but most of that's relatively one-off, and part of it is the productivity delays that we've put in place, which we will come back to as well. So I think for Telstra, Telstra, you know, ultimately, you know, choose a sort of an investor term, is very much seen as a defensive stock, and I think that's right. We are, because we're a core service that's gonna continue to be in demand. We play an essential service role for our customers. And I think we're pretty...
I mean, the other thing is, is that we're so far through our T-22 program and the digitization of our business, that we're very well equipped to provide services to customers. And in fact, as you know, one of the things I've called out is that I believe by the end of the program, we'll be able to effectively reorganize or redesign our customer call centers, such that we'll answer all of our Australian calls onshore. Now, sorry, and Zoe, what's the, what was the second part to your question?
Just on the launch of the fixed line.
Oh, fixed line. Sorry, sorry.
Yeah.
Yeah. No, look, I, I think this isn't a case of taking on NBN or not taking on NBN. It is 5G technology is a really exciting technology. And the, the thing about 5G is that it's the first mobile telecommunications technology that will be operating in very high band spectrum. And so historically, it has been the case that the best spectrum for mobile telecommunications is what we call low band. And the reason for that is that low band, the radio waves travel a long distance, which is good for mobile because you get better coverage for every mobile tower. But the limitation of low band is it doesn't have as much capacity to take as much data volumes as otherwise might be the case.
Historically, it's nonetheless been the best spectrum for mobiles because the size of data that you need on a mobile phone relative to fixed broadband at homes is that much smaller. I think I've previously said, you know, the average customer on NBN consumes about 250 gigs of data a month, whereas the average customer on a mobile handset might consume between 5-10. That's the order of difference. What makes the difference with 5G is that there's a much higher level of spectrum that's available. So if you put this in perspective, we've got 20 MHz of spectrum at 700 band wave. In the 26 GHz spectrum band, which has just been announced, competition limit has been set at 1,000 GHz per operator.
So we've got 20 at 700, and we can bid for up to 1,000 up there. What that does is it gives you a lot more capacity, and it's the first mobile. So you can increase the amount of data volumes that are going through. So you can actually provide a fixed wireless service in the home that matches the level of data volume that you might get over a fixed line service. And that's what brings 5G into play for that. The, the flip side, though, is that what you gain in data volume, you give up in propagation, i.e., the distance that it will cover. And so the, the distance that the radio wave will go in that high band is that much lower.
Anyway, what it does is it means that for certain targeted customers, fixed wireless served over 5G will be a very good alternative to, say, a fixed wireless over 4G or an ADSL service or a VDSL service over copper, particularly if you're a long way from the exchange. And so that's why we're launching it, because we think it will deliver, you know, a really good alternative to customers.
Okay, great. Thanks again, Andy and Vicki.
Thanks, Zoe.
Thanks, Zoe. Hi, Chantelle. I think we have CommsDay up next.
Thank you, Rohan. Go ahead, please.
Hi, Andy. Just a quick one. Just the NBN CVC 40% uplift is ending soon. I'm just wondering if you can comment on the impact that's gonna have on Telstra?
Look, I mean, I think the first thing I should say is that, you know, NBN should be, I think, applauded and recognized for the fact that they did provide that CVC, additional CVCs available. I mean, ultimately, the impact, whenever that is removed, will be a function of what the data volumes are at that time. So the reason that they provided that was because with everybody shifting to studying and moving from home, data volumes, obviously, over the NBN network were going to increase quite considerably, which they did. And we would have had to have bought more CVCs to accommodate that increased demand.
As restrictions are lifted, when they're lifted, if they're lifted and people start to go back to study and work from school and back in the office, then the data volumes will come back down again, and the CVC won't be required. So it's a bit of a function of the interplay between those two things, to be perfectly honest, [Rohan].
I guess, but have you seen, I guess, data volumes start to taper off then? I mean, obviously, the CVC is ending really in about a month now.
Well, we had certainly. I'm trying to remember the timing of all of this now, but you know, when we first went into lockdown and everybody moved to sort of study and, sorry, study and work from home, we definitely saw volumes you know increase 30%-40% plus for a period of weeks. But then, as schools started to go back and people started to go back to work, then we saw those come down again to more normal levels. But then we have seen them increase again, obviously, particularly in Victoria, as restrictions have been reimposed.
You know, and you can see that NBN have already extended the relief a couple of times, and I'm sure NBN and the government will continue to sort of keep an eye on what restrictions remain in place in making any further decisions on that. But I can't. That's for them, obviously, to decide.
Thanks, Andy.
Thank you.
Thanks, Rohan.
Thank you. I'm now going to close the question portion of the call. I'll hand back to Nicole McKechnie to close the call.
Great. Thanks so much, Chantelle. Thanks, everybody, for dialing in. Andy, anything final from you? Otherwise, we will make it a wrap.
No, look, I think that... Thanks, everybody, for hooking in. Long session, but, you know, pleased with the results. We've met guidance, we've delivered our dividend, we're providing guidance for FY 21. You know, there's a few economic implications of COVID in the current situation for us, but, we think we're balancing making the right decisions of being responsible, supporting our customers and our people, and delivering returns for our shareholders. But more importantly, setting us up for growth as we come out of COVID with the investment in digital that we've made, but also the acceleration of the rollout to 5G. So, thank you everyone for hooking in and for your interest.