Telstra's spending on IT doubles to AU$634m

Telstra has confirmed it's on track to complete the first phase of its technology overhaul by the end of June, and revealed the transformation has caused a AU$328 million spike in IT costs for the last six months of 2007.

The news comes as Telstra announced its half-year results in Sydney today, which saw the company's EBITDA (earnings before interest, tax, depreciation and amortisation) increase by 5.2 percent year-on-year.

The telcos capital expenditure increased to AU$2.3 billion over the quarter, with IT the second biggest contributor at AU$634 million -- almost double the IT cost listed for the corresponding period last year, AU$306 million.

Telstra's CFO John Stanhope attributed the rise in IT costs to the company's technology transformation program, which will see the telco slash the number of business and operational platforms it uses.

"IT was big driver of increase in accrued capex [capital expenditure] ... in this half, major products including customer care and customer billing transformation for consumer segment is driving capex up," he said.

Stanhope also told media that as customer demand has increased, Telstra has had to put more resources into its datacentres.

"The IT transformation is still there, it hasn't gone away but customer demand has gone up -- we've got revenue number higher than we expected ... we've had to put more capacity in datacentres, we've had to power those datacentres, we've had to provide accommodation and also changed from leasing boxes, servers, to capitalising servers," he said.

Telstra also listed an increase of AU$31 million in IT costs under its general and administration expenses.

"Some of that was driven by IT transformation ... driven by software licences and hardware support and maintenance. You have to understand, for a little while as we go through this transformation, we will run duplicate hardware and systems and they need support and maintenance," Stanhope said.

Labour costs, too, have increased, with charges for IT professional services jumping by AU$61 million for the first six months of the fiscal year, despite an overall trend towards redundancies at the telco, which has seen nearly 8,000 job losses in recent years.

However, the IT transformation has prompted Telstra to seek out new techies.

"As we continue with the transformation, the old systems and processes are being replaced with latest technology, which will require and does require now quite different skills -- so we will need to employ some people with these skills ... There is a skills refresh taking place as the business transforms," Stanhope noted.

Stanhope couldn't put a figure on the number of new IT recruits Telstra will take on.

Meanwhile, other technology-related costs have fallen -- IT leasing, for example, dropped by AU$5 million in the last half of 2007.

"If IT transformation-related costs are excluded, service contract growth is relatively flat," Stanhope concluded.