Telstra redials on customer service

How many times have we heard this before?

I distinctly remember Frank Blount, one of Telstra's previous CEOs, making customer service his key message when he took the job, way back in 1999. He actually instigated a weekly chat with customers on one of the ABC radio programs – an initiative that he quickly abandoned when he realised how angry his customers were, and that there was actually very little he could do about it.

That is more than 20 years ago and ever since that time we have seen CEO after CEO preaching the same message – we have to improve customer service; we have to put our customers central; we have to be more responsive.

And each time that was linked to yet another reorganisation of the company. The last one being the $5 billion 'Business Transformation Program' from Sol Trujillo which, like most of the others, didn't deliver the results that were expected.

The fact that David Thodey is once again saying all of this is a clear indication that very little progress has been made over that time. So what hope is there of him delivering when nobody else has succeeded in doing so?

Some of the data Telstra produced was certainly impressive and showed that it has had good results with some of its new products. However, in all honesty, that has more to do with attractive prices than with customer service or strategic transformation.

Looking at the present situation in isolation, BuddeComm sees it as a positive development. Finally Telstra is providing more competitive prices for some of its broadband products. Failure to follow the market over the last five years – under Sol Trujillo the mantra was we deliver a superior product and customers therefore have to pay a premium price – brought about a significant loss of market share for the company.

From a customer perspective most telco services are utilities-based services, where price is the key, and often the only, decider, and many of Telstra's competitors have a cost structure which is at least 30 per cent below that of the incumbent, so the competitors can maintain their responsiveness. This could see prices dropping even further.

So going for penetration rather than average revenue per user will enable Telstra to maintain, and perhaps expand, its customer base, albeit at a lower margin. This might be good for its future business survival, but shareholders are clearly not happy with that.

However, far more importantly, what we are missing in Telstra's strategic plan are the reasons why the company is embarking on yet another transformation.

The strategic message that we have heard from Telstra so far still only has to do with the current situation and there is no doubt that under competitive pressure prices will drop further, and that from now on Telstra will have to follow that downward spiralling trend.

In the past, AAPT made similar short-term changes – and it did, in fact, immediately capture more market share, to then arrive at the conclusion that the resultant margin was too low. It then changed direction and dumped 'low earning' customers again before, a year or so later, deciding that it did need higher penetration rates, launching yet another new campaign to win those customers back.

In the end AAPT sold its customers to iiNet – evidence that its short-term strategies hadn't worked. Obviously there are lessons to be learned there.

We also saw, for the first time, questions asked by TPG's relentless grab for market share through its highly successful low-prices strategy. The new competitive approach from Telstra will most certainly put all of the other competitors under pressure as well – hence the strong call from the industry for the current regulatory regime to ensure that the wholesale market remains viable.

Based on this scenario, the immediate future will remain tough, as traditional revenues continue to decline and margins keep falling. In other words, there will be at least another two or three years of flat, or perhaps even negative, revenue growth.

Yes, the company will keep generating cash to satisfy the shareholders focused on dividends, but what does that mean for the future of the company?

As we have said before, we do understand Telstra's current problems and short-term strategy, but what we are missing is a clear future direction for the company. We all now know that the future will have to be built around the NBN and the question is if what Telstra is doing at present will benefit its longer term strategy? Obviously it has to be from that future model where new growth models will need to be developed; they will most certainly not arrive from its current business, nor will that result from yet another reorganisation.

As a matter of fact, to date we have not seen the company's strategy for the NBN; the investors' briefing in September 2010 – where strategy was the focus of attention – would have been an excellent opportunity to address that issue, at least at a high level.

The structurally-separated NBN will see far more specialised activities gaining momentum; these will be concentrated in three areas: infrastructure, middleware (cloud, billing, back-office, etc) and retail.

The infrastructure business will need to be aligned with NBN Co and over time it is questionable whether Telstra should hang on to that business, sell it, or merge it with an infrastructure construction company. So what is their plan or vision here?

Middleware will be the fastest growing market, worth tens of billions of dollars over the next decade – especially given the government's focus on trans-sector use of the NBN by industries like healthcare, education and energy, plus the rising importance of the digital economy for e-commerce, digital media and so on.

Many companies, and indeed entire sectors, will need to be transformed and ICT will be the key tool to make that happen. Here, of course, Telstra will compete head-on with the IT companies. How do they intend to do this?

Finally, the retail sector will move to applications. Here Telstra has indicated that it wants to generate 20 per cent of its revenue from new media services. However we have also heard those messages before from previous CEOs, in particular from people like Ziggy Switkowski and Sol Trujillo. We all remember the 'Google smoogle' remark from Mr Trujillo. Previous targets set by these CEOs were never met, so what is different this time?

In relation to digital media, we have argued for more than a decade that if Telstra were indeed serious about its digital media future, it should merge the Foxtel, Bigpond Media and Sensis businesses and establish a new, independent digital media company. This would avoid the ongoing internal competition between those three companies, and only then will they be able to successfully operate in this new market.

So what is clearly missing from Telstra at the moment is a strategic plan in relation to its future. Yes, it needs to manage the transition in order to arrive at the future, but the focus at present is on a dying business. Its future lies elsewhere.

Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.