Telstra reveals radical restructure plan

Tel-colossus to shed 8,000 jobs, create new infrastructure company

Australia's dominant telco, Telstra, will cut 8,000 jobs, flatten its structure by slicing up to four layers of management, turn 1,800 consumer products into 20 (with a similar reduction in the number of enterprise products later), and put its infrastructure into a separate division that could be sold off in the future.

Telstra CEO Andy Penn said those initiatives are the four pillars of what's dubbed the “Telstra2022” plan.

The carrier has been under pressure from the decline of its fixed line business: as consumers migrate to the National Broadband Network, they'll take revenue with them, and while the incumbent will get payments from nbn™ for roughly 30 years into the future, there's no future growth in the fixed line business.

The infrastructure business announced by Penn as part of the restructure is coming first: it launches July 1, 2018.

Dubbed "InfraCo", the new entity will hold all infrastructure not related to Telstra's mobile business. It therefore inherits the carrier's copper and HFC consumer networks; Telstra-owned access equipment; its international fibre networks and most of its domestic fibre; the telephone exchanges (which will be increasingly redundant to Telstra as the National Broadband Network rolls out); its data centres; and the poles, ducts and pipes.

The mobile network will retain a substantial amount of fibre in its own right, since the network supports thousands of base stations that that number will grow as the carrier rolls out its 5G network.

Telstra's announcement said the offerings of its InfraCo will be sold through Telstra Wholesale and nbn™.

Penn told the investor day the InfraCo will be worth AU$11 billion at its launch.

In the future, Penn said, InfraCo will offer the company the chance either to seek a strategic investor, or even full divestment of the infrastructure business.

It's tempting to at least speculate that nbn™ is the natural target for that investment, but if that happens, it won't be until after the NBN rollout is complete, the point at which Penn said Telstra will open up those opportunities.

Group executive Telstra Wholesale Warwick Bray said InfraCo's $5.5 billion revenue (pro forma for 2018, effective when the new business comes into being) comes from four sources: revenue from the carrier's 200 wholesale customers; commercial works for nbn™ (design and build, but excluding nbn™'s payments as customers migrate, which are their own line item in the list); and revenue from providing infrastructure services to other Telstra divisions.

From that point of view alone, InfraCo makes sense, since investors will get more granular reporting from the company, Telstra retail operations can demand (and will receive) SLAs on wholesale services – and Telstra gets the chance to consider a sale of the operation.

There are other, less obvious benefits, however. For example, Telstra Operations will still be responsible for managing all traffic on the network, but the transition will let ops treat the network it buys from InfraCo as one entity to manage.

The InfraCo stands as an example of a theme that recurred throughout presentations: “our legacy is holding us back” (stated by Penn at the outset, repeated by Vicki Brady, Group Executive Telstra Consumer & Small Business.

Consumer product slash-and-burn

In Brady's brief, the legacy problem is a host of CRM systems that sprung up to support what is now a too-large and too-complex product book.

That's driving the carrier's plan to slash the number of consumer plans from 1,800 to just 20 “core” plans. Those will be modularised, Brady said, so consumers can mix-and-match to get what they want.

But it's the back end that will make the most difference for Telstra investors, because once all the legacy products are gone (by 2021 to avoid too great a shock to existing customers), there'll be just one cloud-based Salesforce CRM to deal with.

Small businesses, Telstra Enterprise group executive Brendon Riley, will also get better offerings, with a connected workplace offering now at “minimum viable product” and due to go general availability this year.

This will be an enterprise-like service, charged on a per-seat basis, that lets the SMB choose from unified communications, mobile, voice, IP data, security, and applications.

The number of business/enterprise plans will also be cut by 50 per cent, and will be migrated to Telstra's new technology stack (think agile and devops, of course) within three years.

Penn said Telstra has set aside $50 million for the staff transitions associated with such a large layoff program; this will be devoted to “outplacement support including training, coaching, and access to financial planning”, and where appropriate, upskilling staff to take other roles within Telstra.

+COMMENT At the time of writing Telstra's share price is AU$2.78, well below the $3.30 per share from the time of its first public offering in the year 1997. The company has paid handsome dividends for years and therefore been a safe place to park money, but with the NBN robbing it of incumbency has not had an obvious route to growth. Attempts to find growth do so have seldom excited customers, acquisitions have not gone well and Asian ventures have floundered.

This restructure/cleanout is therefore necessary, perhaps overdue, and also a sign that the company's long efforts to create a more customer-centric culture and broader product portfolio could only achieve so much without structural change.

It remains to be seen if the results please investors or customers. But Vulture South thinks today's announcements will have made two people very happy: when former prime minister Kevin Rudd and former communications minister senator Stephen Conroy sketched out the NBN on a napkin, they wanted not just a broadband network but a jolt that would re-make the Australian telecommunications market. Their wish arrived today, albeit with final delivery due in the year 2022. ®




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