Business Transformation

Penn Paints Portrait of Telstra Transformation

Telstra boss Andrew Penn, an abstract expressionist painter in his spare time, this week sketched out the telco's progress on transforming itself into a technology company.

"There is virtually no technology being launched today that doesn't require connectivity," he said at the company's annual customer event in Melbourne. "We have to build the kinds of capabilities where we can compete in the future."

He said OTT firms were building new platforms that delivered rich customer experience and as a result were "capturing significant value that our businesses should be competing in."

Netflix had become an $80 billion company by streaming content over telco networks, but "the telecoms industry has not benefited to the same extent."

Two years ago Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) took the decision to become a "world class technology company," he said.

"Everything that has happened since then has only happened with greater impact, faster and with more significance than we could have imagined."

With network traffic increasing 50% each year, Telstra needs to provision for a fivefold rise in traffic by 2020.

To meet that it has allocated an additional A$3 billion ($2.4 billion) on network improvement, on top of its A$15 billion capital program for the 2016-19 period.

It has rolled out 4.5G and a Cat M1 IoT network to 90% of the population, with an NB-IoT network planned for deployment. It will run its first 5G field trial on the Queensland Gold Coast next year in partnership with Ericsson AB (Nasdaq: ERIC).

The full-year results released last month showed the best-performing division was its cloud and managed services unit. It grew revenues by nearly a third, to A$3.4 billion ($2.7 billion), and boosted cloud sales by 50% and its EBITDA margin by three points.

The company last year cut costs by 3.5%, eliminating a thousand jobs. It says it has added hundreds of jobs in new segments, including 500 cybersecurity experts, more than 100 data scientists and 1,000 people in the healthcare business.

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The company, one of Australia's most widely held stocks, also ended its long-term policy of paying out almost 100% of its profits to shareholders.

Penn said the arrival of the NBN, Australia's government-backed national broadband network, had led to a A$3 billion ($2.4 billion) reduction in annual EBITDA and required the company to align its capital management approach with its business strategy.

Telstra was voted the most innovative company of the top 50 companies on the Australian stock exchange, with a score twice as high as the runner-up.

Penn said that as an amateur artist he had found the hardest thing about painting was "knowing what to paint. It's a combination of your heart and your head and following your instincts."

Those qualities will surely be tested as Telstra continues to reinvent itself for the digital age.

Robert Clark, contributing editor, special to Light Reading

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