[ad] The service leader for Cloud is now in Australia. Secure, reliable cloud and managed hosting all backed by 24x7x365 Fanatical Support. Create your free account now.
Buy an Seagate Business Storage NAS for your chance to win a holiday
[ad] Purchase a selected Seagate Business Storage NAS to receive a $20 cash-back AND go into the draw to win a $1,000 Flight Centre voucher so you can holiday in the destination of your choice. T&Cs apply.
Great articles on other sites
- Xbox One smashes sales records
- Tech leaders call for speed, ubiquity in NBN rollout
- AIIA urges Hockey to tackle taxes
- IBM accuses Qld govt of trying to ‘rewrite history’
- Newlease undergoes reverse takeover to score ASX listing
- Australia Post loses battle | The Australian
- Start-ups leap at Telstra's accelerator
- Labor won't hand over NBN advice to Turnbull
- Adelaide Uni on hiring blitz for tech transformation
- Human Services to cut 56 IT jobs
How mobile and social media affect your Customer Experience strategy
[ad] How will the adoption of mobile devices and social media affect your Customer Experience strategy? Are you reaching your organisation's customers through these touch points? Click here to download a whitepaper by Fifth Quadrant examining consumer and business attitudes to these new contact channels.
50 things top IT pros need to know
[ad] This 18 page TechRepublic whitepaper explores 10 things you should know to become an epic IT manager, 40 other essential tips to advance your IT career and practical guidance for starting an IT consulting business. Click here to access the whitepaper.
Opinion - Written by Renai LeMay on Sunday, June 20, 2010 22:05 - 60 Comments
Telstra has finally sealed its own doom
opinion Telstra‘s management will come to regret its $11 billion deal with NBN Co signed this afternoon as the most disastrous decision it has ever made in the telco’s long and tortured history in Australia’s telecommunications sector.
The decision is so bad that it will eventually come to dwarf the hiring of chief executive Sol Trujillo and the 2005 chop in retail broadband rates below wholesale prices in terms of the infamy in which it will come to be regarded within Telstra’s ranks.
The reasons for this are simple.
Firstly, the agreement — in a single fatal stroke — attempts to transform the fundamental nature of Telstra’s business, changing it from an engineering company which primarily builds and operates telecommunications networks into a retail service provider focused on delivering the best customer service and value-add products in Australia’s telco sector.
This is simply not a role to which Telstra is well suited.
When Telstra has finished migrating its fixed-line telephone and broadband customers onto the National Broadband Network, it will find they have little incentive to continue to give it their business.
Despite the onset of strong competition in the telco sector, many Telstra customers (especially families and businesses) have remained with Telstra for years because they do not want to go through the hassle of untangling their complex telecommunications arrangements (fixed-line broadband and telephony, mobile phones, mobile broadband and so on) into separate carriers.
But the technological disruption associated with the migration of their services to the NBN will provide Telstra customers with a once in a lifetime reason to look at rival providers. When they do, they will find that there is almost no reason to remain with Telstra.
The NBN is the great leveller for Australia’s telecommunications sector. It will remove any ability for Australian telcos to compete for customers’ money by building better network infrastructure (an advantage Telstra has historically exploited to the maximum). Instead, telcos will be forced to compete on the grounds of having better prices, customer service or value-added services.
It is a fact as plain as day that Telstra cannot compete with the likes of smaller telcos like iiNet, Internode or even Optus when it comes to customer service. Despite the best efforts of its chief executive David Thodey, Telstra’s customer service continues to stink.
After all … when you call iiNet’s customer service centre you don’t get transferred around endlessly between different departments.
Telstra will never suffer itself to compete on price — the very idea is an abomination in its internal thinking. And value-added services are increasingly becoming the province of third-party companies, especially when it comes to content — one need only look at the growing number of IPTV and video on demand services launching this year from the TV networks and third parties to see that trend in action.
One possible exception to this disastrous trend for Telstra may be the corporate sector, where Telstra has expertise that smaller telcos may struggled to match. But even in that area the big T will suffer — the likes of Optus, AAPT and Macquarie Telecom have been carving chunks off Telstra’s dominance in that market for years.
Yes, the Federal Government may be providing Telstra with some $9 billion to migrate its customers to the NBN, but Telstra will need every penny of that money — because many of those customers will flip Telstra the bird as soon as they join the NBN and hitch their fate to the likes of iiNet instead.
Even if you discount the likely flood of biblical proportions of Telstra customers leaving the ship when the NBN migration takes place, however, the telco has another major problem. What is it going to spend its $11 billion windfall from the Federal Government on?
Telstra already struggles to find enough places to invest its money.
Despite the fact that Telstra re-engineered almost every single aspect of its network infrastructure during the years from 2005 through 2009 (spending billions and billions under the strategy of then-CEO Trujillo), the company’s net profits barely took a hit and have already almost recovered, according to its latest annual report, reaching $4.08 billion for the year to 30 June 2009, compared with $4.31 billion in mid-2005.
Likewise, its free cash flow dipped in 2007 to $2.9 billion, down from $5.2 billion in 2005 – but has recovered quickly to reach $4.36 billion last year. In 2010 Telstra is predicting it will generate free cash flow of $6 billion.
Now obviously this is a high-level glossing over of the situation – Telstra’s financial situation is a complex minefield — and we haven’t gone into any real level of analysis into the company’s complicated balance sheet (or, more accurately, complicated cascading series of balance sheets that descends into a nighmare of detail that gives even seasoned telco financial analysts migraines).
But the fact remains that Telstra currently generates a stack of cash every year and keeps much of it sitting around … at 30 June last year it had $1.38 billion in cash sitting in the bank and a further $4.8 billion in current assets. It’s a lovely little stockpile — and it just keeps on growing.
Traditionally Telstra has invested much of its overflow in its fixed-line networks. Building out fixed infrastructure is quite expensive, as Communications Minister Stephen Conroy is discovering with the $43 billion (plus Telstra’s $11bn, for a total of $54 billion) NBN policy.
But Telstra’s agreement with NBN Co means that that avenue will no longer be open to it.
Some will argue — rightfully — that Telstra will now focus on building mobile infrastructure instead of fixed — a favourite target of Trujillo due to the ACCC’s light regulation touch there, which came about due to the strong levels of mobile competition being posed by Optus, Vodafone and Hutchison.
But mobile networks are cheap. Telstra famously spent just $1 billion on its contract with Ericsson to build its flagship Next G network. Even if you assume the big T spent a further $1 billion in internal effort and has spent another cool billion enhancing Next G’s speed over the past few years, Next G still looks cheap compared with similar fixed-line investments.
All of this begs the question of where Telstra will invest its growing cash pile — including the Government’s $11 billion purse.
Any area that I can think of that Telstra could invest in would take the company clearly outside the area of its core competencies. And this is a very dangerous thing for a company as large and fixed in its ways as Telstra. Former monopolies do not easily or quickly change their stripes.
Telstra is pretty much prohibited from acquiring other telcos in Australia and consolidating its market presence – any acquisition of scale would likely get knocked back by the ACCC and raise a political outcry besides.
Unlike SingTel, Telstra has never really demonstrated any real aptitude for investing in international telecommunications markets. Its CSL New World investment in Hong Kong grew steadily in the year to 30 June 2009, but the revenue growth in that year is not significant when compared to Telstra’s wider operations — a measly $72 million.
The company’s NZ subsidiary TelstraClear actually went backwards by $15 million in 2009. If I were to say why that happened, I would guess it’s because the business again is just not large enough for Telstra’s Australian management to pay it the correct level of attention.
Another option for Telstra is to expand into markets adjacent to its own. The most likely one would be new media/content – a field Telstra has long toyed with. Its long-running interest in its Foxtel joint venture is one example of this attention — as were Trujillo’s new media acquisitions in China and even the speculation that Telstra could one make a play for the Fairfax empire.
The problem with the idea that Telstra might become a media giant is, unfortunately, that if it attempts to do so, it will suffer the same difficulties that the telco did with its $333 million buyout of Australian IT services group KAZ in mid-2004.
As David Thodey well knows — because he oversaw the KAZ business for years in his role as group managing director for Telstra’s Enterprise and Government division — Telstra was never able to integrate KAZ into its operations and was ultimately forced to sell it, because the nature of the IT services market is fundamentally different from Telstra’s strength in network construction and operation.
Just last year Telstra sold KAZ to Fujitsu and abandoned its attempt to play in a market that, after all, was much more adjacent and compatible to Telstra’s core strengths than a new media or content business would be, the company’s encouraging efforts in IPTV and video on demand notwithstanding.
This situation would be even worse if Telstra attempted to invest in a market — say, mining — that is drastically removed from its strengths.
This has always been the problem with Thodey’s leadership of Telstra. In the more than a year since the former IBM executive took the reins of Australia’s telecommunications warhorse, he has failed to clearly articulate to shareholders where Telstra’s future revenue growth could come from. Today’s $11 billion deal with NBN Co has just made that problem a thousand times worse.
Now, let’s not pretend Telstra’s NBN Co deal has no upside.
For the Government, the deal is fantastic — it resolves Telstra’s integrated retail/wholesale nature while also ensuring a speedy and convenient fibre rollout through the use of Telstra’s ducts and delivering the NBN a guaranteed massive customer base.
Telstra’s rivals must be jumping for joy at the idea that they will finally be able to compete with the telco on an even footing, and of course customers will benefit from getting fibre broadband faster and with more competition.
Telstra may be the great tottering grand-daddy from which Australia’s entire telecommunications sector was spawned. But pity is not always offered for those that make gross mistakes of judgment. Thodey’s hubristic belief that he can heal Telstra’s acrimonious relationships with the public and Government will likely come back to bite him and Telstra itself.
Latest Delimiter 2.0 articles (subscriber content)
|Politicians from Australia’s major parties need to stop issuing ludicrous blanket pardons for the intelligence community’s ongoing misdemeanours and start applying a basic modicum of transparency and accountability to this important national security function.|
|The independent pro-fibre National Broadband Network movement is doing a far better job of promoting Labor’s Fibre to the Premises-based NBN policy than Labor itself. When is Labor going to wake from its slumber and start supporting this scrappy but energetic grassroots network of activists?|
|Ziggy Switkowski's first substantial public appearance since being appointed NBN Co chief executive has starkly demonstrated just how different he is from his predecessor, Mike Quigley, and just how strictly he will adhere to the guidelines which his patron, Communications Minister Malcolm Turnbull, has set for him.|
|Australian technology companies have been virtually absent from the the nation’s public stockmarket over the past decade as the stigma of the dot com bust took its toll on investor confidence. But a clutch of new listings planned for the closing months of 2013 shows renewed interest in the sector and that local entrepreneurs are smelling money in the air once again.|
|NBN Co’s Strategic Review process gives the company an unmissable opportunity to re-evaluate the early decision to deploy its FTTP network primarily through Telstra’s underground ducts. The company and its new Coalition masters must now seriously consider deploying more fibre aerially on power poles in an effort to speed up its rollout substantially.|
|That moment which many Australian technologists fervently hoped for but never expected to see has come to pass: Simon Hackett has been appointed to the board of the National Broadband Network Company. But what questions should the Internode founder be asking NBN Co’s executive management team? Here’s five ideas to start with.|
|The rapid replacement of respected NBN Co chief operating officer Ralph Steffens with a Telstra executive who appears less experienced with fibre rollouts but better politically connected represents a key signal that NBN Co’s senior executive hiring process has now become completely politicised and is no longer independent from the Federal Government.|
Enterprise IT, News - Dec 10, 2013 17:23 - 0 Comments
More In Enterprise IT
- David Boyle appointed NAB CIO
- Qld payroll lawsuit ‘rewriting history’, says IBM
- Harbour City Ferries goes Microsoft across the board
- Payroll disaster: Queensland sues IBM
- End of an era: Oracle Australia’s ‘safe hands’ leaves
Blog, Telecommunications - Dec 10, 2013 9:48 - 4 Comments
More In Telecommunications
- “Captain of the Titanic”: Turnbull mocks Quigley’s NBN tenure
- NBN Co still has 1Gbps on way
- Delimiter appeals Turnbull Blue Book censorship
- Final closure: TPG buys AAPT for $450m
- NBN FTTN analysis “devastating” for Coalition
Blog, Industry, Startups - Dec 10, 2013 10:19 - 0 Comments
More In Industry
- Telstra shares millions with Box
- The Australian IT sector needs a stronger voice
- Xbox One goes off with a bang … but will the PS4 launch eclipse it?
- It’s not just Freelancer: Aussie tech IPOs are back in general
- Freelancer’s IPO: A billion reasons to care
Digital Rights, News - Dec 10, 2013 13:05 - 2 Comments
More In Digital Rights
- Labor, Coalition reject Intelligence committee reformation
- Screwed: Australian PS4, Xbox One lack basic functionality
- Censored: Appeal for AG’s Blue Book fails
- Senate to force TPP publication
- Global privacy group files formal ASD complaint