TELSTRA 2022 - T22

  • Announcement T22
  • Telstra InfraCo Announcement


    Telstra sets new strategy to improve customer experience, simplify structure and cut costs

    • Creation of a new wholly owned infrastructure business unit, 'InfraCo' to drive performance and provide future optionality for a demerger or the entry of a strategic investor in a post-nbn rollout world
    • Radical transformation of customer plans and pricing to deliver improved customer experience
    • Increase of our productivity program by a further $1 billion to $2.5 billion cost out by FY22
    • 8,000 net reduction in employees and contractors and reduction in 2-4 layers of management
    • Monetisation of up to $2 billion in assets over the next two years to strengthen the balance sheet
    • Telstra to remain premium brand and lead and win in 5G
    • FY19 EBITDA guidance1 of $8.7 - $9.4 billion expected excluding restructuring costs of approximately $600 million

    Wednesday 20 June 2018

    Telstra today announced a new strategy to lead the Australian market by simplifying its operations and product set, improving customer experience and reducing its cost base.

    The strategy, named Telstra2022, has four key pillars:

    The changes form a three-year plan building on the strategic investments Telstra announced in 2016.

    Telstra CEO Andrew Penn said the strategy would 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," Mr Penn said.

    "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 the 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," Mr Penn said.

    "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."

    Telstra2022 pillars

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

    "The network investments have been critical as Telstra builds capability in software defined networking and prepares 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," Mr Penn said.

    The Telstra2022 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

    Telstra has announced it will transform the experience of its 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 Telstra designs products, sells services and provides customers with support. Leveraging its investment in digitisation, Telstra will simplify its products by retiring all of its more than 1,800 consumer and small business plans and instead introducing 20 core plans backed up by an effortless digital service that removes complexity and provides cost certainty - addressing key pain points for customers.

    Customers will start to benefit from this simplified approach in July when Telstra launches 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 Telstra 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, Telstra already offers some of the best digital solutions in the market. Telstra 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 Telstra's historical strength with large customers and enable it to push firmly into the mid-market and increase market share.

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

    Pillar 2:

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

    Effective from 1 July, Telstra will create a wholly owned standalone infrastructure business unit. It will have its own CEO reporting to Mr Penn. The business unit, called Telstra InfraCo will comprise Telstra's 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 Telstra's 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 and have annual revenues and EBITDA of about $5.5 billion and $3 billion respectively.

    "As technology innovation is increasingly relying on connectivity, the role of telecommunications infrastructure is becoming more important. There is virtually no technological 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," Mr Penn said.

    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 Telstra's core customer segment focused business to support the company's network differentiation. This is particularly important for Telstra's mobiles business as it executes its 5G strategy. The new infrastructure business unit will provide more flexibility and transparency in the management of Telstra's underlying infrastructure. Amongst other things, the arrangements will reinforce the discipline with which capital allocation occurs across the group.

    Importantly, Telstra InfraCo will provide significant optionality for Telstra in the future for a potential demerger or the entry of a strategic investor once the nbn rollout concludes. Telstra's 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

    Telstra 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 Telstra is committing today.

    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 Mr Penn. 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.

    Telstra also intends 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 Services 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 around 30 per cent. 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. Telstra 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.

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

    Pillar 4:

    Industry leading cost reduction programme and portfolio management

    Two years ago, Telstra narrowed its 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 such as in the Philippines, to sell the investment in Autohome for $2.4 billion, to restructure the investment in Foxtel and to streamline the health business and Ooyala.

    Telstra intends to monetise assets of up to $2 billion over the next two years to strengthen the balance sheet. It is also increasing its target for its productivity program by a further $1 billion to reduce underlying core fixed costs by $2.5 billion by FY22. We expect Telstra's total costs will remain flat or reduce despite absorbing more than $1.5 billion of increased nbn AVC/CVC costs that will be incurred as we migrate to the nbn.

    The key drivers of the increased productivity targets include simplifying the 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.


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

    The cost out target adds a further $1 billion in productivity to Telstra's current announced target of $1.5 billion taking core non DVCs from $7 billion in 2017 to $4.5 billion by 2022. Telstra expects 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.

    Telstra is 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. Telstra confirms there is no change to its capital management framework and expects its capex to sales ratio to be 16 to 18 per cent in FY19. 2 3 Capex to sales over the medium term is expected to be 14 per cent.

    Mr Penn said 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," he said.

    Telstra 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 Telstra believes 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 shown by

    Telstra 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," said Mr Penn.

    Telstra also provided the following financial guidance for FY194.

    • 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 Agreements 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
    Telstra's 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 earnings5 6and return in the order of 75 per cent of net one-off nbn receipts over time via fully franked special dividends. 7 5 While Telstra does not provide forward guidance on the dividend, it is reconfirming today that the total dividend for FY18 will be 22 cents per share6. Dividend decisions for FY19 will be announced in FY19.

    Mr Penn said he was confident the strategy would set Telstra up well for the future.

    "Customers will have more choice than ever in a post-nbn world with increasing mobile competition. We are committed to leading the market in a period of transition and positioning 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," he said.

    1 See Footnote 4
    2 Capex is measured on an accrued basis and excludes expenditure on spectrum and externally funded capex.
    3 The guidance assumes the nbnT 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.
    4 This guidance also 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 nbnT 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.
    5 Underlying earnings is defined as NPAT from continuing operations excluding net one-off nbn receipts (as defined in footnote 6.
    6 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.
    7 "net one-off nbnT 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.

    New organisational structure and leadership team for Telstra

    Monday, 30 July 2018

    Telstra today announced a new topline organisational structure and leadership team.

    CEO Andrew Penn said the changes, effective from 1 October 2018, were an important step in delivering its Telstra 2022 (T22) strategy.

    "Last month I announced the T22 strategy to the market and today I am making further announcements on Telstra's structure and leadership to ensure we deliver rapidly and effectively on all of the commitments we made to our customers, the market and our team," said Mr Penn.

    "At the heart of these changes is the simplification of our products and services built on new technology. By mid-next year we will have fully rolled out our market leading products and services. To help deliver these changes, we are announcing a new end-to-end products and technology division of Telstra. It means we will significantly increase our technical capabilities around product development and management.

    "The changes I am announcing today will ensure we continue to deliver market leading innovation in networks and support the build out of 5G and Internet of Things. "Ultimately the simplified and streamlined structure will remove duplication, hierarchy and silos across the organisation. It will help us improve the service that we provide to our customers, the efficiency of the business and our competitiveness, as well as increase our productivity and reduce costs," said Mr Penn.

    Telstra's new structure and the Group Executive team:

    "I am excited to be announcing three significant external hires today. Both Michael Ebeid and Nikos Katinakis bring with them significant experience across a range of industries, including telecommunications, and will be instrumental in Telstra's transformation. We will announce the identity of our new head of Product and Technology shortly," Mr Penn said.

    Michael has most recently been CEO and Managing Director of SBS where he has significantly evolved the public broadcaster's portfolio and led a continuous focus on driving efficiencies and a high-performance culture. He also spent 10 years at Optus, which included being a senior executive in their Enterprise and Government division.

    Nikos has deep experience and expertise in telecommunications, networks and IT. He was most recently Executive Vice President Networks for Reliance Jio in India, where he was responsible for rolling out the first pan-India 4G LTE Network. Prior to leaving Jio, he led their Wireline/fixed consumer business, and before this held senior leadership positions at Canada's Rogers Communications and Ericsson.

    Telstra is also announcing four senior leaders will leave Telstra: Warwick Bray, Stephen Elop, Will Irving and Joe Pollard.

    Warwick has been Chief Financial Officer since 2015. He previously led the Corporate Strategy group and mobiles business where he delivered industry leading growth, increasing Telstra's mobile market share by 10 per cent, achieving double digit revenue growth and improving margin by over $1bn per annum. As CFO, he led the delivery of approximately $700m pa in core fixed cost reduction, introduction of a new capital management framework and driven insight into Telstra's financial performance through nbn structural change. Warwick will leave Telstra on 30 September.

    Stephen has been instrumental in guiding Telstra's corporate strategy and building the company's technology credentials since he joined in April 2016. He played a key role in bringing together the Chief Technology Office and Corporate Strategy groups to support the company's shift from an incumbent telco. Stephen will be finishing in his full time executive capacity at Telstra on 31 July but will continue to maintain a close relationship with the business.

    Will joined Telstra in 1997 and held a variety of legal roles prior to becoming Group General Counsel in 2005. Following the T3 Telstra privatization he was named the 2006 Australian Corporate Lawyer of the Year. He also played a key role in Telstra's $11bn NBN deal in 2011, immediately after which he became the Group Managing Director for Telstra Business. From 2011 to 2016 he grew its market share and its NAS business very significantly. He was appointed as GE Telstra Wholesale in 2016 and has recently led the work developing Telstra InfraCo. Will's last day at Telstra will be 30 September.

    Joe joined Telstra in 2014 initially as Group Managing Director Marketing and Media before becoming Chief Marketing Officer and Group Executive Media the following year. She has been instrumental in evolving Telstra's brand and the experience provided to customers including through the Brand 3.0 work. Joe has also been responsible for building Telstra's extensive portfolio of digitally enabled media assets. Joe will leave Telstra on 30 August.

    "I would like to recognise the significant contributions Warwick, Will, Stephen and Joe have made to Telstra and thank them for their dedication to Telstra collectively over the years," said Mr Penn.

    Mr Penn said T22 was a multi-year transformation program and teams would be impacted at different times and to varying degrees.

    "We are fundamentally re-engineering how Telstra operates, and our new organisational structure and operating model are designed to remove complexity and management layers, decrease the focus on hierarchical decision-making and increase the focus on empowered teams making decisions closer to the customer."