The turmoil inside Telstra's billion-dollar Defence deal

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The turmoil inside Telstra's billion-dollar Defence deal
(Source: Department of Defence)

Exclusive: Telco years behind delivering biggest contract.

Telstra’s largest ever customer contract is proving to be its most back-breaking, as the telco falls dramatically behind schedule in its $1 billion replacement of the Department of Defence’s fixed telecommunications network.

iTnews can reveal that the terrestrial communications project outsourced to Telstra is in serious strife.

While the telco has admitted there have been “some delays on the transformation schedule”,  it insisted “a project of this scale and complexity will always present challenges both in its implementation and delivery”.

But insiders speaking to iTnews on the condition of anonymity say that just three months out from the planned finish line for the program, Telstra is yet to achieve one of its first critical milestones: an interim operating capability (IOC) or proof-of-concept prototype of its proposed network design. 

In fact, the IOC is now somewhere in the vicinity of two years late, sources said.

iTnews understands that higher than anticipated expenditure has pushed Telstra to its third round of job cuts within the Defence account in a desperate attempt to scrape back funds.

Both Telstra and Defence were asked to confirm the missed IOC deadline, but both refused to be drawn on specifics.

A spokesman for Telstra said the company was “working collaboratively with the department to manage those delays”.

Defence said: “Telstra is one of the Department of Defence’s major suppliers and we remain committed to working with Telstra to deliver a communications network which can support Defence operations and business across Australia and overseas”.

However, sources expect Defence will almost certainly need to ask the government for more money to sink into the program, over and above the $1.1 billion contract secured by Telstra in early 2013.

At this stage in the project, Defence is unlikely to walk away from the deal, sources say, having already invested significant time and money into the relationship. The original request for tenders for the work was issued back in 2011.

Insiders have expressed surprise that the department hasn’t yet made any effort to recoup liquidated damages from the telco over missed deliverables.

How did we get here?

In April 2013, then-Telstra CEO David Thodey was basking in the glory of having secured the biggest customer contract in his company’s history, a $1.1 billion, six-year assignment to build “the backbone of Australian Defence for the next decade and beyond”.

Several months earlier, Defence revealed it had picked Telstra as preferred tenderer after a 16 month bidding war that saw the former national carrier knock out overseas-owned competitors Fujitsu and Optus in the later stages of evaluation.

The terrestrial communications project - or JP2047 as it is known in military circles - sought to rationalise and replace all of the fixed telecommunications infrastructure connecting Australia’s defence force and its 100,000 members, with a cheaper and more modern communications foundation.

It set out to link all 330 of Defence’s permanent sites and overseas troop deployments to the same network, which would be streamlined to a single set of standards and products, and would integrate its satellite and tactical networks for the first time.

The department boasted that the refreshed network would allow employees to connect from both corporate and personal mobile devices, and would deliver desktop-to-desktop video conferencing options on Defence’s restricted and secret networks.

“The use of technology such as unified communications, advanced video conferencing as well as tablet and smartphone usage, will provide a vital link connecting troops, commanders, bases and allies around the world,” Thodey said at the contract signing.

“We will create 350 new positions to help serve the contract, including recruiting some of the nation’s leading IT, network and security experts.”

The project was due to be completed by the middle of 2016.

Find out what went wrong...

iTnews understands there have been three rounds of job cuts within the Telstra unit supporting the terrestrial comms deal - the Defence Engagement Business Unit (DEBU) - since the deal started to hit rough water.

The first was an attempt to turn the project around through fresh leadership.

Its casualties included the contract’s top executive, Michael Lawrey, who had successfully secured the deal. In his place, Telstra installed former head of its Westpac account, Kathryn Jones, who currently heads the DEBU as a director level executive, one rung down from the executive director position Lawrey once filled.

The executive cull also saw Luigi Sorbello and Isabel Frederick, among others, depart DEBU, according to the sources.

But the top-down refresh failed to have the impact Telstra’s chiefs had hoped, and insiders say the new bosses are repeating the same mistakes.

Faced with ballooning costs, the telco initiated a round of redundancies within DEBU in November last year, which cost another 11 jobs, followed in February 2016 when 20 or so roles got the chop.

“The redundancies only represent a small percentage of the entire project team and we have been able to reassign some of the impacted people within Telstra where possible,” the Telstra spokesperson said.

He said the DEBU squad, which started at 350, nearly doubled in size as the the project gathered momentum.

The official Defence line is that it remains unconcerned about the redundancies.

And Telstra said it would "continue to review the Defence Engagement operating model and adjust resourcing and skills as required, which is normal business practice".

What went wrong?

The overwhelming consensus amongst insiders is that Telstra never fully comprehended the full complexity of the Defence environment.

Now, sources say, it has found itself struggling with far too much to chew.

The Department of Defence poses some unique challenges to a service provider - like a need to recruit scarce security-cleared resources and the kind of time-management pressure posed by a stringent approvals processes for even the smallest jobs on Defence barracks.

In response to questions on whether Defence would consider terminating the contract over Telstra’s failure to put forward a functional IOC in a reasonable period of time, or pursuing damages over the unachieved deliverables, Defence said it was "committed" to working with the telco.

“Telstra is one of the Department of Defence’s major suppliers and we remain committed to working with Telstra to deliver a communications network which can support Defence operations and business across Australia and overseas," a spokesperson said.

Insiders agreed Defence now had too much skin in the game to pull out.

Meanwhile, on the ground, Defence remains hamstrung by its legacy network environment, which places a big obstacle in the way of its lofty digital ambitions.

This includes a transformative IT program that is expected to cost in the vicinity of $17 billion over the next decade, and which is focused on delivering a coherent and integrated technology environment to the sprawling organisation, plus a new generation of digital innovations.

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