Battling a tide of tech companies moving in on Telstra’s traditional ground, CEO David Thodey has been busy transforming the telco since he took on the top job in 2009.
Telstra has been placing bets across a bunch of tech firms and investing in startups as it hopes to pick the next winning industry and position itself as a company of relevance as it shoulders up against companies like Skype, WhatsApp and Facebook.
The other threat to its business is the regulatory framework in which it operates. Changing government policy in Australia, especially around the NBN roll-out, directly impacts Telstra’s business.
“For Telstra we know if we don’t reinvent ourselves, if we don’t continue to innovate in some way, that our customers will tell us and they’ll leave us, and when they leave us we don’t have a business,” Thodey said earlier this month. More on that here.
Transforming a company with a legacy like Telstra doesn’t come cheap, but that’s okay. The one thing the telco has in abundance at the moment is cash.
Here are 6 things it’s done recently which looks like they could change the telco forever.
1. Offloading legacy assets that are no longer working
Selling off its 70% stake in the Sensis directories for $454 million to a private equity consortium as well as its 76.4% stake in mobile company CSL for about $2 billion, the company has pumped up the balance sheet. At June 30, the company had $7.4 billion in cash on the books.
The sell-off of Telstra’s fixed line assets to the government and NBN Co for a deal that was formerly worth $11 billion needs to be renegotiated to allow for the revised fibre-to-the-node plan. It’s expected a new deal will be signed before Christmas. The deal would pump billions of dollars back into the company for assets it was gifted by the government.
One of the hardest things for any company to do is to step away from its past glories, but Thodey has said it’s something Telstra has to do to remain relevant.
And even though about $1 billion has been returned to investors through share buybacks, the company has been busy making a bunch of acquisitions over the past year.
2. Buying new companies
In August, Telstra chipped in another $US270 million to up its stake in US-based video platform company Ooyala from 23 per cent to 98 per cent.
The telco has also made investments in online reservation site Dimmi and cloud-based communications provider Whispir.
Also in the mix is the recent acquisition of Brisbane-based information security company Bridge Point which provides enterprise and government customers with information security and data management solutions. Telstra said it aligns with the company’s security product and growth strategy.
In September, Telstra made an investment in Silicon Valley e-signature startup DocuSign. The terms of the deal were not disclosed.
The problem with betting all over the table is you risk losing out on multiple occasions, and in Telstra’s case, that could cost the company millions in writedowns. We’ve already seen that when Telstra had to writedown the $302 million investment it made into two Chinese mobile companies.
So it’s a strategy of lots of small bets for the big company in the hope one comes off.
“Digitisation is causing fundamental shifts in business models and workforces,” Thodey said at an investor day this month. “I have no doubt there will be winners and losers. Winners will be the companies that can adapt to these changes and provide an excellent customer experience.”
3. Targeting startups
Part of the strategy which it hopes will put it on the winning side is a heavy focus on startups.
The company has been vocal about how important the startup landscape is to the future of the telco. More on that here.
4. Launching into new industries
It’s also following the sick into healthcare. The company expects health spending to blow out to $200 billion by 2020 and sees Australia struggling to provide reliable services in the face of an ageing population and a rising instance of chronic diseases.
This month, Telstra tipped $100 million into its newly launched healthcare business division to provide e-health technology which connects patients with doctors and doctors to other providers. Telstra’s health division includes e-prescription exchange provider Fred IT and health appointment generator Health Engine.
5. Expanding in Asia
Earlier this year, Thodey said he wanted a third of the telco’s revenue to come from Asia by 2020 as it looks to target the growing middle class in the region, which means there will likely be a lot more deals coming down the pipeline.
The telco is setting aside up to $1 billion to splurge on international acquisitions, partnerships and infrastructure in Asia.
Company CFO Andy Penn said recently taking on Asia will require patience, a flexible portfolio approach and an understanding that not all investments will work.
Telstra has already learnt the difficult lesson of investments failing in Asia. Telstra acquired two Chinese mobile companies for $302 million in 2009.
But this year the telco was forced to writedown the investment when it emerged the companies China M and Sharp Point were involved in a bribery scandal. Telstra was not accused of any wrongdoing – it happened before the Australian company came on the scene, but it’s the sort of thing that’s nearly impossible to pick up in due diligence and an unforeseen risk of doing business in Asian markets.
It’s the old startup truism – fail fast, learn faster.
6. Finding new ways to use old infrastructure.
The telco is investing $100 million to establish a huge WiFi network across Australia over the next five years. This is a big data play – it’ll have about 2 million hotspots across the country when it’s completed.
But to get the project off the ground, Telsta is transforming some of its ancient payphones – yes, they still exist – into hotspots. It’s a piece of innovative thinking which probably saves some money but also shows the company is thinking about solving problems differently.
It’s not just about rolling out infrastructure any more.
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