Investors Unmoved by New Telstra 4-Year Plan
Telstra today unveiled its much-anticipated new strategic plan, promising to slash its workforce by a quarter and set up a dedicated infrastructure unit to arrest its long-term market slide.
But investors were unimpressed, marking the Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) stock down 16 cents, or 5%, at market opening. It closed slightly higher at A$2.77, 4.8% below the previous day's close.
The tepid response adds to the pressure on CEO Andy Penn, who has presided over a 55% fall in market value since stepping into the post in May 2015. (See Telstra Feels the Heat .)
It didn't help that today's launch came hours after yet another outage in Telstra's mobile network -- the third in seven weeks.
Penn told the briefing that the Telstra2022 plan would eliminate up to four layers of management and A$1 billion (US$739 million) in costs over the next four years.
He said the pace of change in the industry meant that "companies that do not respond are most at risk … we are now at a tipping point where we must act more boldly."
Penn said 8,000 staff and contractors -- a quarter of the current headcount of 32,000 -- would be removed from the payroll.
The other headline initiative, the formation of an infrastructure unit, would begin straight away, with a new company, Telstra InfraCo, to be established by July next year.
It will contain Telstra's wholesale business and fixed network infrastructure assets worth around A$11 billion ($8.1 billion), including its copper, fiber and HFC networks, as well as its ducts, data centers, subsea cables and real estate assets. It excludes the mobile towers and mobile backhaul network.
Penn said the company also aimed to "radically simplify" its product offerings. To start with, it would cut its 1,800 consumer and small business plans to fewer than 20.
But he confirmed the company's sombre financial outlook, noting that it will lose up to A$500 million ($369.5 million) in revenues from the end of excess data charges and other revenue sources.
Current guidance is for 2017/18 earnings to come at around the bottom end of expectations.
For next year, the company has forecast a decline of 2-3% in mobile and fixed revenues.
That is "expected to be more than offset by more services per customer and lower costs from simplicity and leadership shown by Telstra translating into new sources of growth."
But beyond the promise of new digital platforms and "connected experiences," the Telstra boss is finding it as hard as anyone else to identify specific sources of fresh revenues that can inspire investors.
— Robert Clark, contributing editor, special to Light Reading