The changes form a 3-year plan building on the strategic investments announced by Telstra in 2016. A consequence of the plan is an expected net reduction in employee and contractor numbers of 8,000, including removing one in four executive and middle management roles to flatten the Telstra structure.
The new strategy leverages many of the capabilities already being built through Telstra’s investment of AUD 3 billion announced in August 2016 in creating the Networks for the Future and digitising the business. The company is building capability in software defined networking and prepares to launch 5G services. “We will be network ready in the first half of FY19 with full rollout to capital cities, regional centres and other high demand areas by FY20”, Telstra said.
Telstra plans to simplify its products by retiring more than 1,800 plans and introducing 20 core plans. This simplified structure will be introduced in July, when the operator plans to launch data across a range of new post-paid plans, and eliminate excess data charges. Four more major product and service experiences will be progressively announced up to June 2019. By then, Telstra customers will experience a simplified service, with all customers being moved to the new product range by 30 June 2021.
For Enterprise customers, Telstra aims to reduce the existing product portfolio by more than half within three years.
New network company
Effective 1 July, Telstra will also create a standalone infrastructure business unit, led by its own CEO. Called ‘Telstra InfraCo’, the new business unit will comprise fixed network infrastructure including data centres, non-mobiles related domestic fibre, copper, HFC, international subsea cables, exchanges, poles, ducts and pipes. Its services will be sold to Telstra, wholesale customers and NBN Co.
Telstra InfraCo will also comprise Telstra’s NBN Co commercial works activities and Telstra Wholesale, with a total workforce of 3,000. It is expected this new business unit will control assets with a book value of AUD 11 billion pro forma and have annual revenues and EBITDA estimated at AUD 5.5 billion and AUD 3.3 billion, respectively.
The new business unit will not include the mobile network assets including spectrum, radio access equipment, towers, and some elements of backhaul fibre, which will remain integrated with Telstra’s core customer segment focused business to support the company’s network differentiation.
Telstra InfraCo will provide optionality for Telstra in the future for a potential demerger or the entry of a strategic investor once the NBN network rollout concludes. Telstra also says its first-half FY19 financial statements will contain detailed segment reporting for Telstra InfraCo.
Global services unit
Also in line with its new strategy, Telstra plans to implement a “streamlined operating model and organisational structure, to be announced in July”. In addition to Telstra InfraCo, one of the first changes to come into effect will be the creation of the Telstra Global Business Services group. This group will be a point of consolidation for all large scale “back of house” processes and functions using technology to reduce costs for large repeatable functions.
“The implementation of Telstra Global Business Service combined with accelerated simplification of processes, moving to more agile ways of working and product simplification is expected to lead to an overall reduction in labour costs of more than a third. This will result in a net reduction of 8,000 employees and contractors over the next three years. The initial focus will be on the reduction of executive and management roles and minimising any impact on customer facing teams”. Telstra said.
The company also plans to invest in 1,500 new roles to build new capabilities required for the future, in particular the shift to new engineering capabilities including software engineering and information and cyber-security. To support this lay-off process, the company intends to make available initial funding of up to AUD 50 million.
Asset sales
Telstra also plans to monetise assets of up to AUD 2 billion over the next two years to strengthen the balance sheet. In addition, the company is increasing its target for its productivity program by a further AUD 1 billion to reduce underlying core fixed costs by AUD 2.5 billion by 2022. The company expects total costs to remain flat or reduce despite absorbing more than AUD 1.5 billion of increased NBN AVC/CVC costs that Telstra expects to incur as it migrates to the NBN. Additional restructuring costs should amount to AUD 600 million in FY19.
Telstra also reports it is committed to the previously announced AUD 500 million of incremental benefits from its strategic investment program. The company also confirms that there is no change to its capital management framework and expects a capex at 16-18 percent of sales in FY19. Capex to sales over the medium term is expected to be 14 percent.
For 2019, Telstra expects to reach income in the range of AUD 26.6 billion to AUD 28.5 billion, with EBITDA ranging between AUD 8.7 billion and AUD 9.4 billion (before restructuring costs of AUD 600 million). Net one-off Definitive Agreement receipts less NBN net cost to connect are expected to be in the range of AUD 1.8 billion to AUD 1.9 billion, while capex is expected to range between AUD 3.9 billion and AUD 4.4 billion.
The company also plans to pay a dividend of 70 to 90 percent of underlying earnings and return in the order of 75 percent of net one-off NBN receipts over time via special dividends. The company has also confirmed that the total dividend for FY18 will be 22 cents per share. Dividend decisions for FY19 will be announced in FY19.
