Telstra shifts focus from transformation to growth
Telstra's annual results demonstrate transformation achievements as the operator looks to build on new skills and technologies and lower operating costs to drive growth.
Telstra shifts focus from transformation to growth
Telstra’s latest results for the fiscal year ended June 30 marked the end of its transformation T22 strategy and the start of what it says will be a period of growth in the form of T25.
The Australian communications service provider (CSP) launched its four-year T22 plan in 2018 because it claims it had to respond to the reality of the impact of the rollout of nbn – Australia’s wholesale National Broadband Network.
Outgoing CEO, Andy Penn, stated: “We knew we had to transform and improve the core business, while investing in new technologies, simplifying our systems and removing customer pain points.”
Penn stressed the strength of the company’s core businesses as it exits T22 and noted that “underlying EBITDA on a guidance basis increased 8.4% to $7.3 billion, driven significantly by an outstanding performance in the year from our mobile business.”
At the same time, however, Telstra reported revenues of AUD 22.0 billion and profits of AUD 1.8 billion, which represent a year-on-year decline of 4.7% and 4.6% respectively. The company attributes the drop “to total income declines of around $700m in one-off nbn receipts and $300m in nbn commercial works.”
Cost reductions
One of the notable achievements of T22 has been cost reduction. In the past year alone the CSP’s fixed costs fell AUD 454 million and its total operating costs dropped AUD 906 million. Overall, T22 achieved its target of reducing fixed costs by $2.7 billion.
At the same time Telstra has built out its 5G network to cover 80% of the population, and connect 3.5 million compatible devices. It also reports a 21.9% increase in IoT connections, which reached 5.7 million.
Another success story is Telstra Health for which revenues grew 13% in the year ended 30 June, or 51% to $243m after including the MedicalDirector and Power Health acquisitions, according to Telstra.
However, the CSP is more cautious about its planned entry into the energy market. Although it has gained license approvals and undertaken a limited number of customer trials, it states: “However, clearly the retail energy market is currently going through severe dislocation and given this we will not be scaling in FY23 as we keep the market dynamics under review.”
Instead, it plans to focus in the coming year on expanding trials to the 10,000 customers that have expressed interest in the service, which it says “has obvious implications for our aspiration to be a top 5 retail energy provider by FY25”.
When it comes to delivering services, its T22 digital transformation has made it easier for customers to use online channels, with changes helping to drive higher NPS scores.
“We radically simplified our business for our customers and our employees,” says Penn.
For example, the company reduced the number of consumer and small business plans it supported from 1,800 to 20. And Telstra reports that almost half its consumer and small business customers’ interactions are now digital, amid rising net promoter scores (NPS).
“The new digital stack is also driving a step change in customer experience, and we are pleased to see year-on-year improvements in…NPS of +24pts for sales & activation and +12pts for assurance including from proactive fixes.”
Changing skill sets
T22 also resulted in sizeable internal changes, with Telstra reducing its direct and indirect workforces by more than one third. At the same time, it has exceeded its recruitment target in areas such as software engineering, data analytics, cyber security, and artificial intelligence with more than 1,500 new hires.
The company’s focus will now turn to growth, with ambitions including turning Telstra Health into an AUD 500 million revenue business by 2025.
“Now we move from a strategy we had to do to a strategy we want to do – from a transformation strategy to a strategy focused on continued growth,” says Penn. “Our transformation under the previous T22 strategy means we are well placed to help build the foundation for, and take advantage of, the growing digital economy and emerging technology shifts.”
Telstra's Chief Architect, Mark Sanders, will be speaking at TM Forum's Digital Transformation World, which is taking place 20-22 September in Copenhagen.