Telstra: Pushing further into Asia

Dr Ziggy Switkowski is certainly no stranger to the telecom scene in the Asia Pacific region. Prior to Telstra, he was appointed the Chief Executive Officer of Optus Communications.

Charged with the greater responsibility of spearheading Australia’s leading telecommunication company, Dr Switkowski bears the Telstra vision of enhancing its position as the leading full-service, telecommunications and information services company in Australia close to his chest.

ZDNet Asia presents selected excerpts of his speech at the Credit Suisse First Boston Conference, Hong Kong on March 29, 2001.

On Telstra's strategic compass
The first point of our strategic compass is our domestic retail business. Make no mistake, this is still Telstra's lifeblood (and will be for some time to come), providing the cash flow to continue to invest and develop the business. It includes mobiles and our fixed line business, where a number of significant pricing and packaging changes have been implemented.

The residential and small business mass market has been well catered for ... already we are seeing benefits through significantly reduced net churn, which in our fixed business has reduced to almost zero by the end of the half. And, at the top end of town, Telstra has won major contracts with Westpac, ANZ and Australia Post and created or enhanced alliances with other corporates such as Qantas.

[Telstra is also] exploring growth options beyond our shores, particularly Asia, important when there is active competition in the domestic market.

Our wholesale strategy goes from strength to strength. We get three out of every four communications dollars spent in Australia - that still leaves our other carriers getting the other one. There are many of them in the Australian market today and by us offering attractive products and solutions to them, they are encouraged to buy from us - not somebody else - and we gain additional revenue.

Applications and content become more and more important as the market and industry moves further and further into the data paradigm. Telstra is moving its business up the value chain - growing our skills base, expertise and portfolio in this area, either by developing content in our own right, or - and this is generally more likely - forging strategic commercial relationships with content providers.

On broadband and GPRS
Telstra has the most [number of] broadband customers in Australia. As at 31 December 2000, we had 50,000 broadband customers, a four-fold increase on the prior corresponding period. It is yet early days – and we are targeting well over one million broadband customers by June 2005.

Telstra has been first to market with a suite of Internet protocol products, helping businesses to link their own staff and offices, and to link with other businesses. Telstra Wideband IP, which connects a company’s metropolitan offices ... is the only product in the world offering high-speed bandwidth on demand from a secure Web interface.

GPRS is the next big technological wave in the mobile data area – and we have already launched it earlier [in March this year]. GPRS offers the possibility for a wide range of enhanced mobile data services, including improved WAP access, Web browsing and Web e-mail. Corporate users, in addition can benefit by having instant mobile access to their company e-mail and corporate intranet sites.

Of course, having the technology is one thing. It's not a lot of use without content - and we continue to enhance our internet, broadband, mobile and pay TV content.

Telstra.com has been enhanced with content such as the HealthAnswers health and lifestyle portal; with Insurance Express, which enables customers to buy insurance online; and through our alliance with online education provider myinternet.com.au.

Our mobiles data portal is being continually improved and now has more than 80 services available. Foxtel, our 50% owned pay TV provider, has recently won the pay TV rights to the AFL, to add to the rugby league rights, to ensure we have the superior domestic sports pay TV offering.

And constructive discussions continue with the other partners in Foxtel regarding the introduction of interactive TV and data services.

Mobile strategy
Australians love mobiles - and, once again, Telstra is the clear market leader.

The competitive mobiles market is in transition. New competitors are coming in, while mobile voice is moving on in its product life cycle. It is important to keep our economies of scale and leading customer base, but we will not compete just for market share at the expense of earnings, through buying customers uneconomically - unlike some of our new competitors, particularly in the pre-paid area. We prefer to focus on market share of value, and on returns, rather than just the sale of handsets.

This has involved [the] repositioning of pricing plans (i.e increasing the price of our prepaid offerings), bundling fixed line and Internet offers, stimulation of non-voice applications, [and] focusing on Customer Relationship Management.

On 2.5G and 3G
While there are a number of years left of strong voice-only handset growth, we are moving to the first phase of demand for real data services. We are establishing Telstra as the leader in wireless data in Australia - in WAP, where we now market more than 80 applications; in SMS - which has taken on in a huge way in Australia; and in testing and trialing for 2.5G services.

At least in the medium term, Telstra sees 2.5G providing all the data functionality required by customers ... 2.5G will also solve many of the problems people have with current clunky and slow circuit switched WAP applications – making it a much more compelling service.

In terms of 3G spectrum, we are happy to have acquired the maximum amount of spectrum possible in metropolitan and regional areas. The price paid of A$302 million (US$154 million) is attractive by international standards. Telstra has secured a clear advantage in the 2GHz spectrum relative to the other participants.

We have purchased more spectrum than any other operator, which leads to better fixed and variable capital efficiencies. We have lower cost per MHz for national coverage than any other operator (Vodafone and Optus around 30% higher). And Telstra now has wider range of 2/2.5G and and 3G options at better underlying costs than our competitors.

The spectrum becomes available from October 2002 and because there are no obligations relating to network roll out, Telstra will choose the appropriate time to build a network having regard to customer demand, international developments and handset availability.

International expansion
The natural market for Telstra to expand internationally is Asia.

The relationships we have been putting in place with PCCW and Hong Kong Telecom are an expansion of a significant long-term commitment to Asia. It gives us voice, data and Internet connectivity services; a mobiles business and a new data business – in one of the world’s highest growth regions.

This will not transform the identity and character of Telstra, but it will make us a serious Asian-based regional player with a powerful domestic franchise. The PCCW / HKT deal is Telstra's springboard into the region and gives us an immediate critical mass.

We have 60% ownership and control of HKT mobile, and together with our Australian business we control two of the best quality mobiles businesses in the region. We see potential for real synergistic benefits and economies of scale. This investment gives a platform and critical mass for further growth in Asia.

What's more, our strong presence in the hub that is Hong Kong places us in an excellent position to expand our presence in Asia. While nothing has been promised regarding access to China, and we have not counted on any benefits from this in our analysis of the PCCW/HKT transaction, we have options to expand north to China in the medium term. We also have the option of expanding in South East Asia, a region where we have had some experience in the past.

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