news The nation’s biggest telco Telstra has set up a new software development business unit, stating that it plans to use the division to take advantage of software-driven business opportunities integrated with its network assets, but without stating precisely what projects the new unit will be working on or what approach it will take.

According to a statement issued by Telstra, the new group will be part of the Innovation, Products and Marketing business unit led by group managing Director Kate McKenzie and will play a key role in Telstra’s strategy to build new growth businesses. It will be named ‘Global Applications and Platforms’.

McKenzie said the group would help set the company up for future success in what was a “highly competitive segment with many new agile participants”. “Our industry is changing rapidly,” McKenzie said. “The future is in the software layer and there is an application for absolutely everything. With successful over the top players growing exponentially, we need to continue to find ways to take challenger positions in this space.”

“Telstra is moving from providing mobile and internet services to encompassing applications and integrated services. This new software defined world presents many opportunities, not least the ability to move faster. The new business will operate as a startup company drawing on the considerable assets of the broader organisation. Importantly, it will have global accountability, drawing from the best in the world and tailoring solutions for the local market and abroad.”

McKenzie said the Global Applications and Platforms business would be built over the next three years and today’s announcement covered the first phase of development.

“It will include a mix of existing and new employees and I expect it to grow over time. The core of the group will include the current Applications Marketplace and Experience Design team led by Freddie Jansen van Nieuwenhuizen and the E2E Industry Verticals team led by Andy Solterbeck. The team will work alongside our Applications and Ventures group which will continue to focus on important ventures activities.”

“We have appointed Charlotte Yarkoni executive director Applications and Platforms to lead the new group. Charlotte will officially commence her new role on 1 March 2013.” Yarkoni has held senior leadership roles at EMC and VMWare, leading developers and providers of information infrastructure technology and solutions. The executive also has a background in cloud-based applications, and has also worked for US carrier AT&T. The new organisation will take effect from 1 February 2013.

opinion/analysis
If you read Telstra’s media release today, you’d likely walk away not having a clue as to what Telstra is actually doing with this new ‘Global Applications and Platforms’ unit. Let’s take this statement from Kate McKenzie, for example: “Ms McKenzie said the group would help set the company up for future success in what was a highly competitive segment with many new agile participants.”

What segment? We don’t know. What participants? We don’t know. Future success? Doing what? We just don’t know. Telstra didn’t say.

However, if you examine the philosophy of massive telcos like Telstra a little and look at who they see as their competitors, it starts to make a little more sense.

Right now, Telstra’s having what it sees as its rightful lunch eaten in a number of different areas. In the consumer sector, telcos like Telstra are frustrated that the billing relationship for mobile apps rests with so-called “over the top” players like Apple and Google, which make the mobile phone operating systems which we all love. We’re also seeing increasing amounts of mobile content being sold online (think iTunes music and videos, for example, or even YouTube, which features ads) and having nothing to do with Telstra, despite the fact that that all the traffic for this goes over Telstra’s mobile networks.

The same is happening in the fixed telecommunications space with consumers, and in the enterprise space as well. Telstra is frustrated that Australians will pay companies like Salesforce.com, Amazon and others for cloud computing apps, all delivered over Australian telecommunications networks, without Telstra getting a dime for those services, apart from the actual transit fees over its networks. It’s this kind of situation which has led France Telecom to bend Google over a barrel in that country this week for the traffic delivered over a portion of its networks in Africa.

Telstra and other major telcos, you see, don’t want to be just suppliers of ‘dumb pipes’ and charge users for what they download, because as lovely as the revenue for this kind of work is, it’s always been low margin and high effort compared to what big software players can do “over the top”. Watch Optus Australia chief Paul O’Sullivan speak passionately about this issue in this video here.

Fuelling this within Telstra, no doubt, is the history which its chief executive David Thodey has with enterprise IT software, hardware and services giant IBM. Thodey understands well the potential which software and services delivered over a network have to drive revenue, and we’ve seen increasing signals from Telstra over the past several years that it wants to get into this game (remember Telstra’s huge cloud computing infrastructure as a service push? The software bundling it’s doing in the small business segment, with products such as Office 365? Yeah).

The only problem with this kind of philosophy on the part of telcos is that with a few exceptions (telcos in Japan being the notable successes in this area), telcos globally have broadly failed to bundle services on top of their network in a meaningful way. In Australia, Telstra, Optus and Vodafone (and Hutchison, before it merged with Vodafone) tried very hard to sell mobile content to users on their mobile phones. But the strategy continually failed and even now is going nowhere.

We’ve also seen telcos like Telstra and Optus try and expand into the enterprise IT vertical over the past decade, through the acquisitions of IT services players like KAZ and Aphawest. However, in these verticals these kinds of moves have also broadly failed. Alphawest has broadly been integrated into Optus’ Business division, and has for a while been moving away from pure play IT services and towards the telecommunications vertical, while Telstra was forced to sell off Kaz in 2009 to Fujitsu, and some of its other IT assets before that.

There are some areas in which Telstra has been successful at broadening its business beyond telecommunications services. Probably the best example I can think of (actually, it’s really the only area I can think of) is the company’s expansion into IPTV and video on demand services through its T-Box platform, which has sold a few hundred thousand copies in Australia. But even that deployment is still overshadowed by Telstra’s much more important investment in PayTV giant Foxtel.

When they set up these kinds of units, telcos do so because they believe that they are technology-focused companies, and they want to be able to take part in the ongoing technological revolution which is occurring globally. They think that by developing applications to run over the top of their networks, they can boost their revenue and build their business beyond being just infrastructure players.

But the truth is that companies such as Telstra are not technology-based companies, and they’re not innovative. They are fundamentally infrastructure-type utilities such as energy, water and road utilities, spending vast amounts of money on decade-long timelines on underlying infrastructure projects which other people will innovate on top of. Such companies actually inhibit innovation in their own operations; because you don’t want to take risks with decade-long infrastructure projects.

This is why I don’t expect much to eventuate from Telstra’s new Global Applications and Platforms unit. Because it runs contrary to Telstra’s fundamental model of operation. We’ve seen this story play out dozens of times before, and we will again. How’d i-mode work out for you Telstra? Yeah.

Image credit: Telstra

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1. seven_tech
   Posted 23/01/2013 at 4:24 pm | Permalink | Reply

   Mmm. Looks like a reaction to the flattening out of ARPU on mobiles. It’s been coming for a while and they’ve all been surfing the good times. Now, they’re having to work for their money….

   I agree, it seems unlikely it’ll work. Telstra are far too much of a behemoth to innovate with that sort of micro-charging.

   • tinman_au
     Posted 23/01/2013 at 5:28 pm | Permalink | Reply

     Maybe it wont, but they do have a lot of vertical integration they could leverage off (movies, music, services, TV, etc).

     They’ve always had this itch that they just never seems to be able to scratch properly, as all their integration has always felt a bit “part A connects to piece B”…kinda connected, but disjointed and obviously different parts. Maybe this will finally help them integrate everything more smoothly (a.k.a “Apple-like”).

2. Peter Kelley
   Posted 24/01/2013 at 9:37 am | Permalink | Reply

   If Telstra think that they can compete with the likes of Google, Salesforce and Amazon without a radical culture change in their application development practices then they are doomed to failure. My experience with their development process and the number of documents that need to be produced for even the simplest change would lead me to believe that their overheads will eat up any profits unless they can start afresh. Their only hope is for a radical overhaul and culture change, insulated from the politics of the rest of the organisation.

   • Jeremy
     Posted 24/01/2013 at 12:27 pm | Permalink | Reply

     I did a 12-month stint as a software developer at Telstra and I agree with the above. Nothing short of a total departure from their usual software development practices is required to give them even a chance of success. Could they do it, if they even recognised the need to do it? Doubtful.

   • Trevor
     Posted 24/01/2013 at 2:27 pm | Permalink | Reply

     IMHO the only chance they have of having a successful software division is to employ some radical, visionary and brilliant people to lead it, then give it all the funding it needs, step back and leave it the hell alone to do its thing. Any properly integrated division staffed with the usual Telstra software teams will, as others have said, only produce the same kinds of go-nowhere projects Telstra has excreted for decades.

     • Renai LeMay
       Posted 24/01/2013 at 2:38 pm | Permalink | Reply

       +1

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