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Telstra Corp. Ld (50IM)

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Wednesday 16 November, 2005

Telstra Corp. Ld

Strategic Review

Telstra Corporation Ld
15 November 2005

15 November 2005
                                      327/2005



Telstra's strategy for growth



Telstra today announced a strategy for improving its business by deploying a
company wide market based management system, adopting a one factory approach to
managing operations and delivering integrated services to customers.


The improved performance will be underpinned by:

•        Increasing revenue by providing new integrated services targeted to
business and consumer segments that have different needs and value services
differently, with a seamless one click, one touch, one button or one screen
approach

•        Cutting costs by simplifying processes and systems, reducing
duplication and complexity of existing networks by operating under a one factory
approach which will lead to new efficiencies and allow a reduction in the number
of full time equivalent (FTE) positions while delivering more effective service.


CEO Sol Trujillo outlined the strategy for a new Telstra for Australia's
broadband and wireless future at an investors briefing in Sydney.  Telstra
announced decisions to:

•        Introduce a next generation IP network, an investment of more than $10
billion over five years of which $2-3 billion is incremental over existing
plans, with the IP core in place by the end of 2007

•        Reduce the number of Telstra's 52,000 full time equivalent (FTE)
positions by between 6,000 and 8,000 over three years and 10,000 over five years

•        Introduce a $200 million field staff training program to provide
Telstra people with the skills in building, running and maintaining next
generation networks

•        Replace the CDMA mobile network with a national 3G GSM network which
will offer the same or better coverage than currently available

•        Cut the number of different network platforms from about 330 by 60 pc
within three years

•        Cut the number of business and operational support systems from about
1200 by 75 pc in three years.


Telstra announced new commitments including:

•        25 pc of new revenue growth will come from new products by the end of
2008

•        Sensis will double its revenue base to $3 billion within five years

•        80 pc of Telstra's internet customers will have broadband in three
years (today 50 pc are on broadband)

•        25 pc of customers will be using 3G in three years (now 1 pc)

•        Business and government customers will be served by 16 competency
centres to equip large customers to transition to an IP environment and to allow
Telstra to grow faster than the market.


Enhanced consumer offerings announced today include Telstra BigPond signing a
deal with Sony Pictures to offer movie downloads to PCs from March 2006 and new
initiatives from Telstra's directories and advertising business, Sensis,
offering online consumer to consumer transactions at Trading Post.


Mr Trujillo outlined Telstra's financial projections based on the execution of
the new strategy - raising top line growth to between 2 pc and 2.5 pc compound
annual growth rate (CAGR) between now and 2010.


Chief Financial Officer John Stanhope said the Telstra Board intends to pay an
ordinary dividend of 28c a share for the next three years and then review it,
subject to the board's half yearly declaration and review of the business and
regulatory conditions.


The CFO announced that the Board has decided not to proceed with the third year
of the $1.5 billion capital management program due to end in 06-07. It is
considered more important to invest this money to implement the new strategy
which is about delivering long term shareholder value.


Telstra updated the market on the outlook for Telstra's earnings for the 2005-06
year with an expected EBIT decline between 19 to 24 pc as a result of the
implementation of the strategy which will require accelerating depreciation
relating to assets that will be decommissioned. This new estimate would increase
the decline to between 25 and 30 pc if Telstra raised a provision for
redundancy. This assumes a reasonable regulatory outcome.


Other financial projections include:

•        A cost structure that will remain flat from the half year 05-06  level

•        Revenue growing faster than expense growth, reversing recent trends -
with EBIT expected to grow at a 3 to 4 percent CAGR between now and 2010.


Mr Trujillo said: 'We will not require the same number of employees and
contractors as we implement the strategy because we will reduce complexity. With
simplicity we can be leaner,' he said.


He said regulation has a huge potential impact on Telstra's business and the
financial projections assume a reasonable regulatory environment in which to
operate.


'If excessive regulation doesn't get in the way, we can hit the plan we have
laid out today. If it does get in the way, it has the potential to be harmful to
our core,' he said.


Mr Trujillo said: 'We have a chance to make a strong company great. We will do
that by being innovative, by offering integrated services to consumers, by
employing market based management and by being highly competitive.  Customers
want it their way and they have very different needs.  Only Telstra can make it
happen.


'Telstra has a vision to use technology and capabilities available today to
transform industries and improve people's lives.  We have barely tapped the
potential of what is possible and how we can improve productivity for Australian
business and increase mobility for consumers.'


Mr Trujillo said the Australian telecommunications industry was based on price
competition in a downward spiral and was not adding enough value to its
customers.


'Our strategy is to offer customers products which work seamlessly together and
to offer business differentiated wireless and broadband solutions which will
create the most value for them,' he said.


The market based management plan outlined by Group Managing Director Strategic
Marketing Bill Stewart will include needs based and value based segmentation
following extensive high quality customer research.


Telstra's program will involve interviews with 90,000 consumer customers and
will build a panel of 16,000 small businesses in order for Telstra to understand
its customers' needs like never before.


Telstra's Chief Operations Officer Greg Winn said a review of Telstra's
operations over the past four months showed that investment was spread across
far too many networks and technologies.


Telstra planned to cut the number of its complex business support and
operational support systems by 75 pc in three years and transform the IT
capability to deliver new cost-effective capabilities.


'We will introduce a new IP/MPLS network core by the end of 2007,' he said. 'We
will deploy five mated pairs of new high capacity soft switches to replace 116
class five switches, providing deep network redundancy, deep resiliency and
dramatically lowering our cost structure.'


Mr Winn said the move to a national 3G GSM mobile network would mean Telstra
would be the first Australian telco to deliver nationwide wireless broadband to
all its mobile customers, offering improved speed and quality. He said that
Telstra spends more than four times on capex per CDMA subscriber than it does
per GSM subscriber.


A centralised program office will orchestrate the change effort through the
company, he said.


Investors were also told that:

•        Sensis plays a critical role in Telstra's core strategy and its online
business would be further developed by integrating search and transaction based
applications and services for Sensis customers and core Telstra customers.

•        Foxtel is a core asset by which Telstra could create shareholder value.

•        Telstra announced a memorandum of understanding to merge its Hong Kong
mobile business CSL and another Hong Kong carrier New World Mobile Holdings
which would give clear market leadership.


Telstra Media Contact:

Andrew Maiden
Tel:  02 9298 5259   Mbl: 0428 310 710



   Telstra's national media inquiry line is 13 1639 and the Telstra Corporate
   Communications Centre is located at: www.telstra.com.au/abouttelstra/media




                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                 

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