Telstra to switch focus to customers

TELSTRA will consider acquiring companies with product development and software capabilities as it reorientates itself away from telecommunications engineering to focus on customer services and digital households, chief executive David Thodey said yesterday.

By InvestSMART · 28 Jun 2010

By InvestSMART ·
28 Jun 2010

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"We will keep expanding our product portfolio out, but there are new opportunities coming along that may provide us with opportunities to do acquisitions," he said in an interview with ABC television.

"It is about acquiring capabilities rather than bolt-ons."

Mr Thodey said that while Telstra had a "great engineering culture", this would be irrelevant once the national broadband network was built because Telstra would no longer have a telephone network to maintain. Instead, the company could focus on developing products like cloud computing (internet-based systems) and household products like the T-box.

"We have got to become a sales and marketing-led company customers at the centre of everything we do.

"So we have got a big cultural change to go through.

"For years we have had regulation on us, and the great opportunity we have now is to put that behind us and move forward." The deal had "freed up" Telstra, and reduced capital and operational expenditures, Mr Thodey said, adding that shareholders would continue to see a similar return on equity.

Last week Telstra and NBN Co announced a $9 billion deal to giving NBN Co access to Telstra's telecommunications infrastructure, and to migrate Telstra's fixed-line customers on to NBN Co's fibre network.

An additional $2 billion from the government would retrain Telstra staff and go towards setting up a company to deliver the Universal Services Obligations, previously performed by Telstra.

Meanwhile, NBN Co chief executive Mike Quigley said the government could expect to get higher returns from its investment in NBN Co because of the deal struck last week.

"There is obviously a net improvement to the business case and a net improvement to the returns to the government by doing the deal, otherwise we simply would not have done it," he told ABC television.

Mr Quigley also said the national network would cost less than $43 billion, but at least $26 billion as estimated by the implementation study.

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Frequently Asked Questions about this Article…

What strategic shift has Telstra announced and why is it important for investors?

Telstra is shifting away from a pure telecommunications engineering focus toward customer services and digital household products. Management says the company will become more sales- and marketing-led with customers at the centre of its strategy. For investors, this signals a move into higher-margin product development and software-led services rather than traditional network maintenance.

Will Telstra pursue acquisitions as part of its new strategy?

Yes. Telstra said it will consider acquiring companies with product development and software capabilities. The emphasis is on acquiring capabilities rather than simple bolt-on businesses, which could accelerate Telstra’s push into digital products and cloud services.

How does the $9 billion NBN deal affect Telstra’s operations and costs?

The $9 billion deal with NBN Co gives NBN access to Telstra infrastructure and migrates Telstra’s fixed-line customers onto NBN Co’s fibre network. Telstra’s chief executive said the deal has ‘freed up’ the company and reduced capital and operational expenditures, allowing Telstra to focus on new products and services.

What impact will the NBN transition have on Telstra’s engineering culture?

Telstra’s CEO noted that while the company has had a ‘great engineering culture,’ this will become less central once the national broadband network is built because Telstra will no longer have the same telephone network to maintain. The company expects a significant cultural change toward sales, marketing and customer-centred activities.

How might Telstra shareholders be affected by the NBN deal and strategic change?

Telstra’s management said shareholders should continue to see a similar return on equity despite the transition. The company expects reduced capital and operational expenditure from the deal, which management believes will support shareholder returns as Telstra refocuses on products and services.

What new products and services is Telstra likely to develop under the new strategy?

Telstra indicated it will expand its product portfolio into areas such as cloud computing (internet-based systems) and household digital products like the T-box. The shift targets consumer-facing digital services and software-enabled offerings.

What support is the government providing to help Telstra through the transition?

The article says an additional $2 billion from the government will be used to retrain Telstra staff and to help set up a company to deliver the Universal Service Obligations that Telstra previously performed. This funding is intended to ease the workforce transition as services migrate to NBN Co.

What did NBN Co say about the national broadband network cost and returns from the deal?

NBN Co’s chief executive said the government could expect higher returns from its investment because of the deal with Telstra, describing a net improvement to the business case. He also said the national network would cost less than $43 billion but at least $26 billion, according to the implementation study.