The turmoil inside Telstra's billion-dollar Defence deal

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.

(Source: Department of Defence)

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.

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