- Telstra has announced plans to cut 8,000 jobs over the next three years, with executives and managers first in the firing line.
- Under the “Telstra2022” initiative, the company will set up a separate infrastructure company with a book value of $11 billion, which could be spun out in the future.
- It also plans to radically simplify customer offerings and move all customers off legacy technology within two years.
- The company’s share price recently hit five-year lows amid mounting pressures on its business model.
Telstra will cut 8,000 jobs in a major restructuring of the business that will “radically simplify” product offerings and lead to a further billion dollars in cost savings.
Executives and managers will be the first roles targeted by the headcount reduction, which is expected to cut labour costs by 30 per cent over the next four years. Telstra says it will reduce between two and four layers of management across the company.
A new unit will be set up to run its infrastructure business which it says would provide “future optionality for a demerger or the entry of a strategic investor”, signalling a potential split of the company.
Telstra’s share price recently hit five-year lows as the firm has faced pressure on its business model on multiple fronts, particularly deflation in mobile pricing. Updated guidance issued today assumes mobile and fixed line revenue will decline 2 to 3 per cent.
The company said it expected income in the range of $26.6 billion to $28.5 billion and EBITDA in the range of $8.7 billion to $9.4 billion, before $600 million in restructuring costs.
In the announcement this morning ahead of an investor meeting today, Telstra chief executive Andy Penn said: “We will take a bolder stance and use the disruption in the telecommunications industry to lead the market for the benefit of our customers, employees, and shareholders.
“The rate and pace of change in our industry is increasingly driven by technological innovation and competition. 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.”
The new infrastructure business called Telstra InfraCo — with a book value of around $11 billion and annual revenues of $5.5 billion — will be established from July 1 and will be a wholly owned, standalone unit with its own CEO reporting to Penn.
It will comprise Telstra’s fixed network infrastructure including data centres, non-mobiles related domestic fibre, copper, HFC, international subsea cables, as well as other infrastructure like exchanges, poles, ducts and pipes, the company said.
The new company will not include mobile infrastructure assets and spectrum. Its customers will be Telstra, wholesale customers and nbn co.
“As technology innovation is increasingly relying on connectivity, the role of telecommunications infrastructure is becoming more important. There is virtually no technological innovation happening today that does not rely on a high quality, reliable, safe and secure telecommunications network. In this world our infrastructure assets are becoming more valuable. By creating a new infrastructure focused business unit we will better optimise and manage these assets,” Penn said.
Overall, the Telstra2022 initiatives, as they are known, will cut staff costs by around 30 per cent, with management first to be targeted.
“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,” the company said.
The initiatives will lead to estimated savings of $1 billion, in addition to the $1.5 billion in productivity improvements already flagged.
Penn said the telco sector was “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. Against that background, we announced in May that FY18 earnings will be at or around the bottom end of guidance. We expect the trends to continue in to FY19. In our guidance for FY19 we have assumed the market will decline 2 to 3 per cent in mobile and fixed revenue,” he said.