Telstra2022: Key takeaways from Telstra's new strategy

ZDNet unpacks the main points of Telstra's new three-year strategy, including the establishment of InfraCo and Global Business Services, and how it will handle NBN, 5G, and TPG.
Written by Corinne Reichert, Contributor

Telstra has announced its four-pillar strategy for the next three years, with CEO Andy Penn saying the telco has six goals: To improve customer experiences; simplify its products, business, and operating model; extend its "network superiority and 5G leadership"; achieve global high performance in employee engagement; achieve a net cost productivity of AU$2.5 billion by FY22; and attain a post-National Broadband Network (NBN) return on invested capital of 10 percent.

Here are the biggest takeaways from Telstra's three-and-a-half-hour strategy session on Wednesday morning.

Telstra InfraCo: The new wholesale infrastructure company

Telstra announced that it will be establishing an infrastructure business to report financially as a separate segment. According to Penn, it will create "optionality" for a demerger or entry of a strategic investor for post-NBN deployment.

"We are announcing today that we will be establishing a wholly owned standalone infrastructure business unit with its own CEO reporting to me," Penn said.

"The business will comprise Telstra's high-quality fixed network infrastructure assets, including datacentres, domestic fibre, international subsea cables, exchanges, poles, ducts, and pipes. It will provide access to these assets to Telstra through commercial arrangements to drive efficiency and transparency. It will comprise Telstra's commercial activities and existing Telstra wholesale business. It will also continue to provide services to NBN Co."

Speaking on Telstra InfraCo, group executive of Telstra Wholesale Will Irving said it will also include the management of more than 5,000 exchanges and datacentres, along with the access equipment and hybrid fibre-coaxial (HFC) network.

There will be three segments of InfraCo: Telstra wholesale, NBN Co, and Internal Telstra.

Penn said InfraCo will have an initial workforce of around 3,000 employees, with assets worth AU$11 billion; annual revenue of AU$5.5 billion, including from Telstra wholesale customers, Telstra internal access, commercial works for NBN, and recurring proceeds from NBN; and earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$3 billion.

"The business will not include the mobile network assets including spectrum, radio access equipment, towers, and some elements of fibre backhaul, because these will remain integrated to Telstra's core customer-focused segments to enable us to effectively manage our strategic differentiation in the market," Penn added.

"This will also be very critical in our strategy for 5G, where we intend to lead. The initial steps for the establishment of this business have already been undertaken ... will be in operation by the end of June 2019."

InfraCo will begin financially reporting in February next year as part of the telco's first-half FY19 results.

9,500 job losses + 1,500 new roles = 8,000 net job cuts

Announced on Monday morning, the 8,000 net jobs being cut will include 25 percent of executive and middle management roles being removed.

According to Penn, the jobs are being removed due to the need for more simplified and digitised processes.

"Telstra's strategy is premised on benefits to customers of market-leading, simplified, and digitised products and services for all Australians. This in turn will facilitate a significant simplification in the business, and therefore further cost reductions. This simplification is crucial to Telstra's competitiveness, and we expect it to lead to a 30 percent reduction in our labour costs," Penn said.

"It will have an impact on jobs with Telstra, and whilst we do expect to create up to 1,500 new roles within the company, overall we expect a net reduction of 8,000 jobs over the next three years, including Telstra employees and contractors.

"I'm acutely conscious of the impact that the jobs reduction has on our people, and on the broader society. I'm also acutely conscious of the uncertainty that this announcement creates for our people, but I need to be upfront and I need to be transparent about the scale of change that is needed at Telstra."

According to group executive of Human Resources Alex Badenoch, the 1,500 roles being created will largely be across software engineering and cybersecurity.

To deal with the restructure, the telco will be investing AU$50 million on two programs: The first to provide "enhanced outplacement support" for those leaving; and the second for a reskilling program for those employees moving into new roles.

The job cuts are also part of the third pillar of Telstra's strategy, which is an effort to implement "new ways of working that embed agile, DevOps, lean, and customer-centred design".

Australia's politicians weighed in on the job losses, with Prime Minister Malcolm Turnbull calling the news "heartbreaking".

"I've spoken with the chief executive about this last night. Telstra is putting in place a fund, as you know, to support the transition of the employees that leave Telstra onto new occupations and new opportunities," Turnbull said.

"But it's a reminder of why it's so important to have a strong economy. A strong economy where new jobs are being created all the time so that while one company reduces its workforce there are other businesses, new businesses and including in that telco sector which is a very dynamic one, that are creating new opportunities."

A joint statement from Shadow Communications Minister Michelle Rowland, Shadow Minister for Employment and Workplace Relations Brendan O'Connor, and Shadow Minister for Employment Services and Workforce Participation Ed Husic made a noble effort to blame the Coalition for Telstra's job cuts.

"Labor is concerned that we are seeing yet another example, under Turnbull's government, of thousands of Australians losing secure, decent jobs, without a plan to transition into new jobs," the shadow ministers said.

"The Turnbull government must actively be involved to ensure that affected workers get the intensive and tailored support they need to transition to new employment and, where required, provide training and case management services. It's simply not good enough to sit back and leave it to Telstra."

Opposition leader Bill Shorten added that Labor will "make sure that Telstra pays people's entitlements".

Telstra Global Business Services

Large-scale back-of-house processes and functions will all be combined into Telstra Global Business Services, the telco also announced, which will launch on July 1 with 2,500 employees initially.

"Global Business Services will bring together our shared services functions, as well as other, high-volume repeatable activities to ensure that we take a one-company approach to simplifying, automating, and innovating in these areas," Badenoch said.

"The group will be a point of consolidation for all large-scale back-of-house and operational process and functions using the technology to reduce costs.

"As we incorporate more functions and activities into this model, it will grow over the next two years. Our Global Business Services team will provide services to all Telstra business units and Telstra InfraCo."

Telstra's 5G rollout

Penn told ZDNet that Telstra would deploy its 5G network fast and extensively, adding that there will be a three-phase process to the rollout.

"Phase 1 is the period that we're in right now, which is characterised by pre-5G technical standards and early launch. Mainstream compatible 5G devices are unlikely to be available until late 2019 and into 2020; in the meantime, however, there will be early use cases for 5G, the most significant of which will be fixed-wireless," Penn said.

"Phase 2 of the 5G rollout will address the mainstream market as handsets become available. 5G is critically important, as it will enable us to drive down the cost per gigabyte of data, and this technology innovation improves speeds and capacity. In this regard, therefore, we will roll out 5G fast and extensively as it becomes available.

"Phase 3 of 5G will comprise the longer-term opportunities for growth, many of which have not even been identified yet. We have already laid substantial foundations in the Internet of Things and connected solutions, which are the early use cases that we've already deployed on 3G and 4G. These are the precursor for the long-term growth opportunities."

Telstra has already launched 5G, he added to ZDNet, in the form of its Gold Coast deployment earlier this year including the 5G-enabled Wi-Fi offering. Otherwise, the telco is just waiting for 3GPP to settle on standards.

"Once the standards are actually set, then all of the various different players of the global ecosystem, so the equipment manufacturers, radio access equipment, chipset manufacturers, they can all then sort of start to build compatible cases," Penn told ZDNet.

"We're basically the first and only 5G-enabled Wi-Fi network in the world four or five months ago ... the main game will obviously be when the standards are set, when the equipment manufacturers are building network core equipment at scale, and we're very much front and centre of that."

According to Penn, Telstra's big partnerships for mobile networking have traditionally been with Ericsson and Cisco, but he said the telco has "enormous respect" for Huawei and will monitor the federal government's decision on whether to allow the Chinese tech giant to take part in 5G rollouts across the nation.

COO Robyn Denholm added that Telstra will have a 5G-ready network in the first half of FY19, and a commercial launch across major cities and regional centres in FY20.

Simplifying products

Under Pillar 1 of Telstra2022, the telco said it would "radically simplify" its products, reduce "customer pain points", and move to a fully digital set of solutions, to which it will migrate all customers.

Discussing Pillar 1 from a consumer and SMB perspective, group executive of Consumer and Small Business Vicki Brady said there will be "far fewer" plans, moving from more than 1,800 currently down to less than 20.

In addition, the telco will expand its range of included services, such as "the best digital entertainment", with Brady mentioning sport and Foxtel.

Across SMBs, business-grade solutions will be offered, including productivity and security services, with more "companion plans" to incentivise customers to have all of their telco services with Telstra.

The roadmap will include five key products and experiences by mid-2019, Brady said, adding that she could not be more specific yet.

"Today, I am very pleased to announce four significant changes that we will bring to our customers in July," Brady said.

"The first is peace-of-mind data across a wide range of our post-paid plans, taking away the fear of excess data charges. Second is our first companion plans, providing really simple and compelling reasons for our customers to add more services with us.

"And then finally there are two components of our 'effortless digital experience' that our customers will enjoy in July. The first of these is a really effortless express checkout, particularly for our new range of companion plans. And finally, the redesigned experience for our 24/7 app."

Discussing Pillar 1 from an enterprise perspective, group executive of Telstra Enterprise Brendon Riley said Telstra has already commenced the process by curating and acquiring IP for a "new digital stack and technology base".

Riley additionally announced the "connected workplace", which will become available before Christmas this year, aimed at mid-market customers rather than large enterprises.

"So we're delighted to announce today connected workplace," Riley said. "We have connected workplace in minimum viable product, we will announce connected workplace in the months ahead and as Andy mentioned, this will have general availability before Christmas this year."

"It is the ability to provide fixed, voice, UC, messaging, with add-ons for mobile and applications ... it will be all-digital, it will be ordered in minutes, provisioned in minutes to hours, and everything will be built electronically, with the ability for the customer to flex up and down in volume in real time."

NBN costs

According to Telstra's fourth pillar, it will now be able to absorb the costs of migrating customers to the NBN.

"The first three pillars of the strategy will enable us to increase our target for productivity by a further AU$1 billion to AU$2.5 billion in core non-DVC [Directly Variable Costs] cost reduction by 2022," Penn said.

"This equates to a reduction of almost 50 percent in fixed costs after you take into account the impacts of inflation and growth. Through this work, we also expect total costs to remain flat or declining, and critically what this means is that we will absorb the full weight of the NBN DVC AVC charges that we incur in the migration to the NBN."

How Telstra will deal with TPG as a mobile player

Telstra also addressed how it will handle TPG entering the Australian mobile market as the fourth provider later this year, pointing towards its low-end Belong brand.

"We had anticipated that TPG will be attractive down in the more price sensitive end of the market, as we talked about last investor update, we took Belong into the mobile sector and it's continued to perform well for us," Brady said.

"Looking at how Belong is performing, it's doing the job it needs to do for us for those customers, and keeping the Telstra brand at the premium end of the market is working."

Penn added that he takes all competitors seriously.

"TPG and David [Teoh, CEO] and his team have built a phenomenal business over the last 20 years and should never be underestimated," Penn said.

"We've got a very clear strategy in terms of how we'll respond ... we're very well positioned in investments we've been making, particularly some of the changes we're making now."

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