Telstra remains a financial winner

The incumbent telecommunications provider's profits for the year ended 30 June 2008 have increased 13.5 percent from last year. The company's end-to-end transformation helped to drive the improvement in its financial results across the company. According to Telstra its free cash flow increased 33 percent to $3.9 billion.

Independent telecommunications analyst Paul Budde claimed Sol Trujillo’s strategies are certainly working in favour of Telstra. The company remains one of the most, if not the most profitable incumbent telcos in the developed market.

“It has been able to very cleverly use the flawed Australian self-regulatory system to maintain its dominance in the market. This, linked with astute financial management, is delivering results that many other telcos can only dream of,” he said.

According to Budde the company has successfully created chaos in the market, buying time to begin a process of transformation that will allow it to better position itself in the emerging digital economy.

“This new environment will generate a completely new range of business opportunities, but, like all other incumbents, Telstra, with its legacy of old system telecoms networks, was not well-positioned to participate in this new environment,” he said.

Budde claimed while the transformation may not be achieved within the projected three to five years it is absolutely critical to Telstra.

Despite its perhaps rather unrealistic target, BuddeComm supported its aggressive approach to the transformation, as it would be easy for it to become derailed if there were not a sense of urgency attached to the process. While other telcos are going through similar transitions, Telstra is certainly among the leaders in getting the job done.

“It is not only an enormous technological undertaking – it also involves a complete change of culture. Staff is confronted with a massively disruptive learning curve - middle management, in particular, is on a very difficult course,” he said.

“The people element of the transition is the most difficult to manage – many of these middle managers are near retirement age and may not be keen to embrace the new world.”

Budde said that three years into the process there is no turning back, with significant implementations having already taken place. Slowly but surely Telstra is preparing itself for the digital economy. The company certainly has become more competitive, and more customer-focused.

Sol Trujillo has also stated that he sees a need for massive growth in telecoms capacity to underpin the digital economy and in that respect he clearly hinting at an FttH future. It is important to bear this in mind when analysing the antics that are taking place around the National Broadband Network (NNM), said Budde.

“With that vision established the company is putting an infrastructure strategy in place that has FttH as an end goal. Totally independent of any NBN, very significant fibre investments are already being made under the company’s normal maintenance program,” said Budde.

“In the three years since the discussion began regarding an NBN the amount of fibre in Telstra’s network will have very significantly increased and it would not be too difficult for the company to fairly quickly switch on a ‘half-way house’, known as FttN. “He believes that within the current regulatory framework there is nothing to stop Telstra from continuing its market dominance in moving forward with fibre networks.

However the regulatory status is not under the control of Telstra and can be changed quickly if the government chooses to do so. So the company is obviously nervous about this and it is pulling out all plugs to try and retain its control for as long as possible.

“Market dominance allows Telstra to make very substantial returns on its investments (ROI), which, of course, is good for Telstra’s management, and for its shareholders,” said Budde. “But the digital economy is too important to the nation for it to be based solely on the delivery of the highest possible investment returns.”

Budde claimed that this is where Telstra’s strategy comes unstuck. In order to use the infrastructure for emerging technologies such as e-health and tele-education it must be based on returns in line with other utility services, such as electricity, gas and water.

"An NBN that most people cannot afford to use, or that is not economically viable for the delivery of government services, would be contrary to the national interest," he said.

"However from all aspects the future for Telstra remains very bright indeed. While its dominance in the fixed market can, at least to a certain extent, be reined in, at the same time the company will always remain the dominant player in that market."

"It is a fallacy to think that an NBN can be built without Telstra, or that Telstra can be bypassed."

Budde claimed the company was extremely well-positioned to deliver the infrastructure for the digital economy, and its transformation process and focus on fibre networks are clear indications that the company is on the right track.

Unlike some of its international counterparts Telstra has all of the right strategies in place to move successfully into the future.

“This would make Telstra the ideal partner for e-health, tele-education, e-government, smart grid and other services that will be developed in a digital economy,” he said.

“True, with an open network policy Telstra will encounter more competition and this will force the company to accept a lower ROI on its infrastructure investments.”

Although Telstra may receive a slightly smaller slice of the pie in future, the overall size of that pie is increasing significantly and this bodes very well for the company’s future, said Budde.

telco/isp