The market doesn't like Telstra's plan to cut 8,000 jobs and save $1 billion

Picture: Getty Images
  • Telstra is losing 8000 staff over the next three years, stripping out several layers of management, as the telco prepares for a more competitive world.
  • The major restructure includes a separate infrastructure company with a book value of $11 billion, setting up Telstra to be able to spin off a new company.
  • Telstra will also simplify its product offerings by retiring 1,800 consumer and small business plans and replacing them with 20 core plans.

Shares in Telstra fell hard in early trade after the telco announced a major restructure including the loss of 8,000 jobs.

The shares dropped more than 6%. At the close, they were at $2.77, down 4.8%.

Telstra today announced plans to cut 8,000 jobs over the next three years, with executives and managers first in the firing line as the telco gets rid of several layers of management.

Under the Telstra2022 initiative, the company will set up a separate infrastructure company with a book value of $11 billion, which could be spun off as a separate ASX-listed company in the future.

Telstra also today updated its guidance, saying 2019 financial year EBITDA is expected to be between $8.7 billion and $9.4 billion, excluding restructuring costs of about $600 million.

The forecast assumes the market will decline 2% to 3% in mobile and fixed revenue.

The major restructure is a response to the erosion of Telstra’s dominant position as Australia’s biggest telco as competition intensifies.

The NBN roll-out is smothering Telstra’s valuable fixed-line business and the company has had to accept lower margins to protect its market share.

Telstra CEO Andy Penn says Telstra is at a tipping point, with the company needing to take a bolder stance and use the disruption in the telecommunications industry to lead the market.

“The rate and pace of change in our industry is increasingly driven by technological innovation and competition,” he says.

“In this environment traditional companies that do not respond are most at risk.

“We have worked hard preparing Telstra for this market dynamic while ensuring we did not act precipitously. However, we are now at a tipping point where we must act more boldly if we are to continue to be the nation’s leading telecommunications company.”

Penn says the Telstra workforce will in the future be a smaller, knowledge-based one with a structure and way of working that is agile enough to deal with rapid change.

“This means that some roles will no longer be required, some will change and there will also be new ones created,” he says.

Telstra will simplifying its product offerings by retiring its more than 1,800 consumer and small business plans and replacing them with 20 core plans.

The company also plans to cut two to four layers of management, and eliminate the need for one third of customer service calls within two years and two thirds by 2022.

The restructure aims to increase Telstra’s productivity program by a another $1 billion to $2.5 billion by the 2022 financial year.

Penn says the telco sector is “entering an extremely challenging period” driven by a number of factors including the nbn transition and increased mobile competition.

“We are seeing this play out in our financial performance and therefore the impact on the economics of the company are very significant,” he says.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.