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T22 – our plan to lead

T22 5G

Posted on June 20, 2018

14 min read




Today we announced a new strategy to lead the Australian market by simplifying our operations and product set, improving customer experience and reducing our cost base.

The strategy has four key pillars:

  • Radically simplify our product offerings, eliminate customer pain points and create all digital experiences
  • Establish a standalone infrastructure business unit to drive performance and set up optionality post the nbn rollout
  • Greatly simplify our structure and ways of working to empower our people and serve our customers
  • Industry leading cost reduction program and portfolio management

The changes form a three-year plan building on the strategic investments we announced in 2016. The strategy will fundamentally change the nature of telecommunication products and services in Australia by eliminating many pain points for customers.

We will take a bolder stance and use the disruption in the telecommunications industry to lead the market for the benefit of our customers, employees and shareholders.

The rate and pace of change in our industry is increasingly driven by technological innovation and competition. In this environment traditional companies that do not respond are most at risk. We have worked hard preparing Telstra for this market dynamic while ensuring we did not act precipitously. However, we are now at a tipping point where we must act more boldly if we are to continue to be the nation’s leading telecommunications company.

A consequence of the plan is an expected net reduction in employee and contractor numbers of 8,000, including removing one in four executive and middle management roles to flatten our structure.

We are creating a new Telstra that is able to continue to lead the market. In the future our workforce will be a smaller, knowledge-based one with a structure and way of working that is agile enough to deal with rapid change. This means that some roles will no longer be required, some will change and there will also be new ones created.

We understand the impact this will have on our employees and once we make decisions on specific changes, we are committed to talking to impacted staff first and ensuring we support them through this period.

Our pillars

The strategy leverages many of the significant capabilities already being built through our strategic investment of up to $3 billion announced in August 2016 in creating the Networks for the Future and digitising the business.

The network investments have been critical as we build capability in software defined networking and prepare to lead the market and win in 5G. We will be network ready in the first half of FY19 with full rollout to capital cities, regional centres and other high demand areas by FY20.

The strategy will therefore be underpinned by the largest, fastest, safest, smartest and most reliable next generation network. The digitisation program is delivering completely new technology stacks for Consumer and Small Business and Enterprise customer segments which will be the platform for the new products we are launching.

The four pillars of the program are:

Pillar 1: Radically simplify our product offerings, eliminate customer pain points and create all digital experiences

We will transform the experience of our Consumer and Small Business customers.

This will be different to anything currently in the market, addressing the need to increase the simplicity, transparency and satisfaction that customers experience with telco products today. This will see a fundamental change to the way we design products, sell services and provide customers with support. Leveraging our investment in digitisation, we will simplify our products by retiring more than 1,800 plans and introducing 20 core plans backed up by an effortless digital service that removes complexity and provides cost certainty – addressing key pain points for customers.

Our customers will start to benefit from this simplified approach in July when we launch peace of mind data across a range of new post-paid plans, making excess data charges a thing of the past. Four more major product and service experiences will be progressively announced in the lead up to June 2019, the details of which will remain confidential at present for competitive reasons.

By June 2019 our customers will experience a radically simplified experience made possible by new intuitive digital platforms, with all customers being moved to the new product range by 30 June 2021.

For Enterprise customers, we already offer some of the best digital solutions. We will continue to be the best one-stop shop for all B2B technology needs, offering customers a modular, curated, self-service and simplified product portfolio. The program to remove complexity will be accelerated to reduce the existing product portfolio by more than half within three years. The approach will also include greater emphasis on a digital-first model, supported by software-based platforms and Internet of Things. It is expected this will bolster our historical strength with large customers and enable us to push firmly into the mid-market and increase market share.

Over the past year, we have built a completely new technology stack for mid-market and Enterprise customers, which will enable these changes. We will use the natural momentum in the business to migrate customers to the new product suite enabling us to stop the development of products on legacy systems, and aggressively rationalise old applications and services.

Pillar 2: Establish a standalone infrastructure business unit to drive performance and set up optionality post the nbn rollout

Effective from 1 July, we will create a wholly-owned standalone infrastructure business unit. It will have its own CEO reporting to me. The business unit, called Telstra InfraCo will comprise our high-quality fixed network infrastructure including data centres, non-mobiles related domestic fibre, copper, HFC, international subsea cables, exchanges, poles, ducts and pipes. Its services will be sold to Telstra, wholesale customers and nbn co.

Telstra InfraCo will also comprise our nbn co commercial works activities and Telstra Wholesale, with a total workforce of approximately 3,000. It is expected this new business unit will control assets with a book value of about $11 billion pro forma and have annual revenues and EBITDA estimated at approximately $5.5 billion and $3.3 billion respectively.

As technology innovation is increasingly relying on connectivity the role of telecommunications infrastructure is becoming more important. There is virtually no technology innovation happening today that does not rely on a high quality, reliable, safe and secure telecommunications network. In this world our infrastructure assets are becoming more valuable. By creating a new infrastructure focused business unit we will better optimise and manage these assets.

The new business unit will not include the mobile network assets including spectrum, radio access equipment, towers, and some elements of backhaul fibre, which will remain integrated with our core customer segment focused business to support the company’s network differentiation. This is particularly important for our mobiles business as we execute our 5G strategy.

The new infrastructure business unit will provide more flexibility and transparency in the management of our underlying infrastructure. Among other things, the arrangements will reinforce the discipline with which capital allocation occurs across our business.

Importantly, Telstra InfraCo will provide significant optionality for us in the future for a potential demerger or the entry of a strategic investor once the nbn™ network rollout concludes. Our H1 FY19 financial statements will contain detailed segment reporting for Telstra InfraCo.

Pillar 3: Greatly simplify our structure and ways of working to empower our people and serve our customers

We will implement a new streamlined operating model and organisational structure, to be announced in July. Ways of working are being simplified and re-aligned to increase the focus on best serving customers, increasing the focus on product leadership, breaking down silos and enabling the sizeable transformation to which we have committed.

In addition to Telstra InfraCo, one of the first changes to come into effect will be the creation of the Telstra Global Business Services group, also reporting to me. This group will be a point of consolidation for all large scale “back of house” processes and functions using technology to reduce costs for large repeatable functions.

We intend to elevate its focus and capabilities in product development and management across the company, increasing the leverage and sharing of technical efforts across all customer segments.

The implementation of Telstra Global Business Service combined with accelerated simplification of processes, moving to more agile ways of working and product simplification is expected to lead to an overall reduction in labour costs of more than a third. This will result in a net reduction of 8,000 employees and contractors over the next three years. The initial focus will be on the reduction of executive and management roles and minimising any impact on customer facing teams.

We will also invest in approximately 1,500 new roles to build new capabilities required for the future, in particular the shift to new engineering capabilities including software engineering and information and cyber-security.

I recognise the significant impact these changes will have on employees, and we have announced two new programs. A Transitions Program for those leaving we will provide enhanced outplacement support. For those remaining, we will provide support to upskill and transition to new ways of working in a leaner and more agile organisation. To support the programs we intend to make available initial funding of up to $50 million.

Pillar 4: Industry leading cost reduction program and portfolio management

Two years ago, we narrowed our strategy to ensure all new growth investments were more closely focused on products and services close to the core of the business. Since then decisions have been made not to pursue international consumer opportunities, to sell the investment in Autohome for $2.4 billion, to restructure the investment in Foxtel and to streamline the health business and Ooyala.

We intend to monetise assets of up to $2 billion over the next two years to strengthen the balance sheet. We are also increasing our target for our productivity program by a further $1 billion to reduce underlying core fixed costs by $2.5 billion by FY22. We expect total costs will remain flat or reduce despite absorbing more than $1.5 billion of increased nbn AVC/CVC costs that we will incur as we migrate to the nbn™ network.

The key drivers of the increased productivity targets include simplifying our product set, phasing out legacy products and systems and migrating customers to new products. Other drivers include further digitising sales and service channels and continuing to improve procurement practices.



Benefits

The Telstra2022 strategy will deliver benefits for all stakeholders – customers, shareholders and employees and will ensure that Telstra remains Australia’s premium and most trusted brand in telecommunications.

It has specific goals with tangible and clear milestones covering customer experience, simplifying the business, network superiority, people, cost improvements and strengthening the balance sheet. They include:

  • Reducing the number of consumer and small business plans from 1,800 to 20.
  • Migrating all consumer and small business products and plans and 50 per cent of enterprise customers to completely new technology stacks within three years and leave the legacy behind.
  • Establishing a standalone infrastructure business unit to drive improved performance and create optionality for the future including a potential demerger or the entry of a strategic investor post the rollout of the nbn.
  • Reducing 2-4 layers of management across the organisation.
  • Eliminating the need for one third of customer service calls within two years and two thirds by FY22.
  • Leading in all key industry surveys for network performance.
  • Increasing our productivity program by a further $1 billion to $2.5 billion by FY22.
  • Monetising up to $2 billion in assets over the next 24 months to strengthen the balance sheet.

The cost out target adds a further $1 billion in productivity to our current announced target of $1.5 billion taking core non DVCs from $7 billion in 2017 to $4.5 billion by 2022. We expect to incur additional restructuring costs of approximately $600 million in FY19 and further restructuring costs across the remaining years of the program including the potential acceleration of depreciation and amortisation from the early shutdown of legacy systems.

We are committed to the previously announced more than $500 million of incremental benefits from its strategic investment program. Telstra2022 would not have been possible without these investments.

We confirmed there is no change to our capital management framework and that we expect capex to sales ratio to be 16 to 18 per cent in FY19 . Capex to sales over the medium term is expected to be 14 per cent1 2.

Telstra2022 was developed in response to anticipated changing market dynamics, which initiated the investments announced in 2016.

The Australian telco market is entering an extremely challenging period driven by a number of factors including the nbn transition and increased mobile competition. We are seeing this play out in our financial performance and therefore the impact on the economics of the company are very significant. Against that background, we announced in May that FY18 earnings will be at or around the bottom end of guidance. We expect the trends to continue in to FY19. In our guidance for FY19 we have assumed the market will decline 2 to 3 per cent in mobile and fixed revenue.

We advised the transition under the program is also likely to eliminate up to $500 million in revenues for its services over the next three years, with excess data charges being the first example. However, over the longer term we believe these moves are in the best interests of customers as they accelerate a trajectory already underway and will drive long-term value. They are expected to be more than offset by more services per customer and lower costs from simplicity and leadership translating into new sources of growth.

These trends are not dissimilar to that which we have seen in global telecommunications markets, including the US and Europe particularly after the entrance of new mobile operators.

Telstra also provided the following financial guidance for FY193:

  • Income to be in the range of $26.6 billion to $28.5 billion
  • EBITDA to be in the range of $8.7 billion to $9.4 billion (before restructuring costs of approximately $600 million)
  • Net one-off Definitive Agreement receipts less nbn net cost to connect in the range of $1.8 billion to $1.9 billion
  • Restructuring costs of approximately $600 million
  • Capex to be in the range of $3.9 billion to $4.4 billion

Our dividend policy is set out in its capital management framework and is to pay a fully franked ordinary dividend of 70 to 90 per cent of underlying earnings4 5 and return in the order of 75 per cent of net one-off nbn™ receipts over time via fully franked special dividends5 6.

While we do not provide forward guidance on the dividend, we have confirmed today that the total dividend for FY18 will be 22 cents per share5. Dividend decisions for FY19 will be announced in FY19.

I am confident the strategy will set Telstra up well for the future. Customers will have more choice than ever in a post-nbn rollout world with increasing mobile competition. We are committed to lead the market in a period of transition and position ourselves to create a strong platform for growth. At its core, this strategy is about placing customers at the centre of everything we do and delivering simpler, more flexible products with a beautiful digital service experience.

1. Capex is measured on an accrued basis and excludes expenditure on spectrum and externally funded capex.

2. The guidance also assumes the nbn™ rollout and migration in FY19 is broadly in accordance with management’s current best estimates and may be updated for any material changes, including after taking account of the nbn Corporate Plan 2019 when it is published.

3. This guidance assumes wholesale product price stability and no impairments to investments, and excludes any proceeds on the sale of businesses, mergers and acquisitions and purchase of spectrum. The guidance also assumes the nbn™ rollout and migration in FY19 is broadly in accordance with management’s current best estimates and may be updated for any material changes, including after taking account of the nbn Corporate Plan 2019 when it is published. The guidance is provided on a consistent basis with FY18 accounting standards. Guidance will be updated during FY19 to be consistent with IFRS15 under which we will report FY19 results. Capex is measured on an accrued basis and excludes expenditure on spectrum and externally funded capex.

4. Underlying earnings is defined as NPAT from continuing operations excluding net one-off nbn receipts (as defined in footnote 6).

5. Return subject to no unexpected material events, assumes the nbn™ rollout and migration is broadly in accordance with management’s current best estimates, and is subject to Board discretion having regard to financial market conditions, business needs and maintenance of financial strength and flexibility consistent with Telstra’s capital management framework.

6. “net one-off nbn™ receipts” is defined as net nbn one off Definitive Agreement receipts (consisting of PSAA, Infrastructure Ownership and Retraining) less nbn net cost connect less tax.

Tags: Telstra news,

Transforming our product and service experience for our customers

T22

Posted on June 20, 2018

3 min read




We know Australians are seeking a simple and transparent telco experience.

As an industry we have often failed to deliver on this. It is not an easy challenge because, like it or not, telecommunications is complex.

Today we have announced that we are fundamentally redesigning the products and plans we bring to market for our customers and the experience they enjoy with us.

Under the changes we have outlined:

  • Our plans will become dramatically simpler, and there will be far fewer of them (with 20 core plans replacing 400 available in the market today).
  • Customers will have peace of mind about their charges, they will only pay for the services they value, and they will be able to move between plans at any time.
  • There will be more incentives for customers to have more of their services with Telstra – and the more services a customer has with us, the more value they will receive.
  • We are redesigning our product proposition to be modular, so that households and businesses can build their own plans based on what’s most important to them.
  • And all of this will be much easier for customers to manage than it is today, with an intuitive, digitally led experience that gives them clarity and control over their services.

Our Consumer and Small Business customers will start to benefit from this simplified approach in July when we make peace of mind data available across a range of new Post-Paid plans – making excess data charges a thing of the past.

Several additional major product and service experiences will be announced progressively in the lead up to June 2019.

By the end of June 2019, our Consumer and Small Business customers will see a radically simplified experience made possible by new intuitive digital platforms that will give them the ability to make changes to their products in near real-time via our 24×7 App.

And our people in our stores and contact centres will be able to serve customers faster than ever before, with new digital tools that replace legacy systems, manual processes and numerous screens.

As a result of these changes we will dramatically reduce the need for customers to contact us with queries – something we know frustrates them. In fact, we expect the number of customer service calls we receive will go down by around a third within two years.

By leaving our legacy product designs and systems behind, we are working to meet our customers’ expectations and truly to transform telecommunications for all Australians.

Enterprise-grade technology for small to medium sized enterprises

We have also announced Connected Workplace, a new bundled offering for small to medium sized businesses that will be available in Australia before the end of this year.

Connected Workplace is a digitally delivered, fixed-price, per seat solution with modular add-ons. It’s a simple all-in-one solution that brings together voice and video calling, collaboration and messaging, on a basic managed private network with embedded security.

It will bring enterprise grade technology to small and medium sized companies to allow them to focus on running their business and less time on their technology.

This product is the first fully digital solution delivered on Telstra Enterprise’s new digital core, and one of a number of next generation solutions introduced by Telstra Enterprise over the last year.

This is the beginning of a dramatically simplified, next generation service experience for Telstra’s customers of all sizes.

Tags: Telstra news,

Establishing a standalone infrastructure business unit

T22

Posted on June 20, 2018

3 min read




As part of our new strategy we will be establishing Telstra InfraCo, a new standalone business unit within Telstra.

Telstra InfraCo will be responsible for key fixed network assets and for managing our relationships with our more than 200 wholesale customers and our long-term strategic relationship with nbn co.

It will be accountable for our copper and HFC networks; all our fibre network that is not dedicated to supporting mobiles; all ducts, pits and pipes; property including exchange buildings and data centres; and international and domestic subsea cables. These assets will be combined with Telstra Wholesale and the teams in Telstra Operations that provide services to nbn co.

At establishment on 1 July, this new Business Unit will control assets with a book value of approximately $11 billion and have annual revenues of more than $5 billion from internal and external sources.

Connectivity has never been more in demand and as such our infrastructure has never been more important to our customers.

Telstra InfraCo’s mission is to be the most efficient fixed telco infrastructure provider in the market. It will serve three customer segments: Wholesale in Australia; nbn co; and the broader Telstra covering Consumer and Small Business and Enterprise. It will offer the full range of wholesale products that Telstra offers today, while also focusing on improving infrastructure service delivery to benefit all our customers across nbn co, wholesale and the rest of Telstra.

By putting our fixed assets together in a single BU we are establishing the right structure to give greater focus on this part of Telstra’s business. It will also provide greater visibility to the market of the value of this business and create more optionality for the period after the nbn rollout is complete.

Separate to Telstra InfraCo, Telstra will continue to operate an integrated mobile business, with key assets including spectrum and towers, and our Network Applications and Services business.

Responsibility for key operational activities, like actively managing the traffic on our fibre networks, will continue to be with Telstra’s Operations group, which manages it today. Indeed, while InfraCo will share responsibility for the equipment used to power services carried over the infrastructure it controls – including copper, HFC and fibre networks – all network management functions will continue to be undertaken by Telstra Operations, so that we continue to run one integrated network from a traffic and managed services perspective.

While Telstra InfraCo will be focused on maximising the value of our fixed assets, having our mobile network, software, applications and 4G/5G and IoT capabilities all aligned together will result in innovative new products being developed and deployed more quickly for our customers. Maintaining an integrated mobiles business is particularly important as we execute on our strategy to roll out 5G in 2019.

This change clearly delineates our integrated mobiles business and Network Applications and Services business from our nbn related and core carriage infrastructure business and will help ensure our customers enjoy the benefits of Telstra being the most efficient infrastructure provider in the market. Additionally, the structure we are using in setting up InfraCo will mean we will have flexibility as the industry continues to evolve in the future and the nbn™ network rollout is completed.

Telstra InfraCo will commence on 1 July 2018 and Telstra will publish pro forma FY18 segment reports for InfraCo at our results in August and then formal segment reporting will be provided at our first-half FY19 results in February 2019.

Tags: Telstra news,

Transforming our workforce

T22

Posted on June 20, 2018

3 min read




Today we outlined how we will transform Telstra’s workplace to set ourselves to deliver on our bold new corporate strategy.

We know our size and legacy are significant assets and have contributed to our success. But we also know these can act as a barrier and get in the way of what we now need to be – nimble and agile enough to respond easily and rapidly to changing market dynamics and opportunities.

To meet these challenges head on we will disrupt ourselves by greatly simplifying our structure and ways of working.

A new streamlined operating model and organisational structure will be implemented and our ways of working will be re-aligned to increase our focus on best serving our customers, increasing the focus on product leadership, breaking down internal silos and enabling the sizeable transformation to which we are committing.

One of the first changes to come into effect will be the creation of Telstra Global Business Services on 1 July. This group will be a point of consolidation for all large scale ‘back of house’ and operational processes and functions using technology to reduce costs for large repeatable functions.

The establishment of Telstra Global Business Services combined with the accelerated simplification of our products and processes, and move to more agile ways of working is expected to lead to an overall net reduction of 8,000 employees and contractors over the next three years.

This is not about doing the same work we do today with fewer people, it is about radically simplifying our operations and product set and fundamentally changing the way we work.

We will continue to invest in the capabilities we need for the future with approximately 1,500 new roles in areas such as software engineering, and information and cyber-security.

We are working through the detail in relation to this and expect to be able to share more information in July.

Our commitment to our people and customers

We recognise this transformation represents a significant change for our people and we will be consulting with them throughout the process. We will also have two new programs in place to support all of our employees:

  • A transition program for those leaving Telstra will provide enhanced outplacement support.
  • For those remaining, we will provide support to upskill and transition to new ways of working in our leaner, more agile organisation.

To support the programs we intend to make available initial funding of up to $50 million.

For our customers, we will ensure minimal disruption by initially focusing on reducing executive and management roles rather than our customer facing teams.

Telstra’s future workplace

These changes are the first step in making Telstra a fundamentally easier place to work at and do business with.

We will be smaller, with flatter management layers and structured to support easier, quicker ways of working so we are agile enough to deal with constant change and respond to customer needs.

We will have fewer products, delivered more quickly and at a lower cost. And there will be an emphasis on developing skills to support new technologies and services.

While the size and shape of our organisation will evolve, our success will continue to be built on people with deep connection to our customers, expert knowledge and technical expertise.

Tags: Telstra news,

Creating industry leading cost and portfolio management

T22

Posted on June 20, 2018

2 min read




In an intensely competitive world, Telstra needs to change to ensure that we can lead the market during a time of disruption.

A big part of this is ensuring Telstra has an industry-leading costs base and the best possible approach to asset management.

Two years ago we narrowed our strategy to ensure all new growth investments were more closely focused on products and services close to the core of our business.

Since then, that focus has meant we have decided to sell our investment in Autohome for $2.4 billion, to not pursue international consumer opportunities, to restructure our investments in Foxtel and to streamline our Telstra Health business and our digital media and online video platform, Ooyala.

We intend to be even more focused going forward, streamlining businesses and focusing on costs and productivity.

This will include pursuing the sale of assets to deliver up to $2 billion to strengthen the balance sheet by the end of FY20.

It also includes a further $1 billion increase in our productivity program to reduce the underlying fixed costs in our business by $2.5 billion by the end of FY22.

This means that after inflation and re-investment, our gross cost productivity target is expected to almost halve our underlying core fixed costs to approximately $4.5 billion by the end of FY22.

We’ve already made good progress on improving productivity. Strong momentum since we launched our productivity program has meant we’ve been able to deliver cumulative productivity of approximately $700 million since FY16.

Now we will take a range of measures to continue to improve our productivity. The best form of productivity improvements are the ones that deliver better outcomes and get it right first time for our customers. We will be simplifying our product set, phase out legacy products and migrate customers to new products. We will also further digitise sales and service channels and continue to improve our procurement practices.

The changes we are making will help take our underlying fixed costs from $7 billion in 2017 to $4.5 billion by 2022. This will give Telstra a globally-competitive cost base.

Our increased financial focus and discipline will protect our strong balance sheet and help the business deliver on the most important areas of work.

Tags: Telstra news,