Automating Telstra Still Performs Like a Knackered Robot
T22, despite the name, is not the 22nd movie in the Terminator franchise. But with its depiction of brutal headcount reductions at the hands of machines, it might as well be. Under its T22 strategy, Australia's Telstra is cutting 8,000 jobs, nearly a quarter of its entire workforce at the end of June 2018. Almost 5,000 roles have subsequently disappeared as Telstra says a Schwarzeneggerian "hasta la vista, baby" to humans.
The update on headcount reductions came in the operator's just-published annual report for its fiscal year ending in June 2019. The good news is that only 2,000 employees are still waiting to be identified for termination. The other 6,000 are either out or bound for the exit.
The bad news is that Telstra is still performing like a knackered robot, despite CEO Andrew Penn's upbeat take on results. Total sales decreased 3.6% to A$27.8 billion ($18.8 billion), earnings (before interest, tax, depreciation and amortization) decreased 11.4%, to A$9.4 billion ($6.4 billion) and net profit after tax decreased nearly 40%, to $2.1 billion ($1.4 billion), said Telstra in the highlights section of its press release. That's a lot of decreases for a highlights section, and it features some troubling double-digit declines.
The blame falls squarely on the NBN, of course. Australia's scheme to build a state-backed wholesale network, based partly on infrastructure Telstra once owned, was the "largest reason" for the EBITDA decline, said Telstra. It estimates NBN has cost it roughly A$1.7 billion ($1.2 billion) in EBITDA since the 2016 fiscal year, including A$600 million ($407 million) in the most recent one. And it's only about halfway through the pain, it reckons. Yet even when the NBN effect is stripped out, EBITDA is down 4% last year.
The answer lies partly in the cost-cutting effort. Penn thinks Telstra has saved about A$456 million ($309 million) in the year and A$1.17 billion ($790 million) since 2016. That puts it on track to achieve a cost-reduction target of A$2.5 billion ($1.7 billion) by 2022, he says. Simplification is partly responsible, as Telstra ditches managers of managers, or perhaps the managers being managed. But T22 is also "underpinned by our multi-billion dollar strategic investment program to digitize and automate our systems," says the company. So beware any employees out there who actually do something non-managerial. Your days may be numbered, too.
For growth, Telstra is banking -- like every other network operator on the planet -- on 5G. It has already launched a commercial service in some parts of the country and expects to have some presence in 35 cities by June 2020. Telstra's mobile business was a rare bright spot in the annual results, with sales up 1.6%, to about A$10.5 billion ($7.1 billion). Consumers evidently like what Telstra has to offer, because it gained about 900,000 retail connections in the year, to finish with 18.3 million.
But few observers are convinced 5G will make a big difference in the smartphone sector. In markets where nearly everyone has a device, 5G subscriptions will only replace older 4G ones, after all. And in the UK, where Vodafone and Three are now advertising low-cost 5G services, there is already concern about a 5G price war. The one real hope for telco sales growth is that 5G eventually gets used to support new types of service -- connected robots in factories, for instance, or even self-driving cars.
These applications are clearly a long way off, though. In the short term, Telstra is guiding for another decrease in sales and profits next year, forecasting revenues of A$25.7-27.7 billion ($17.4-18.8 billion) and EBITDA of just $7.3-7.8 billion ($5-5.3 billion). Ouch.
Investors are taking it all in their stride. While Telstra's share price dipped 1.8% today, closing at A$3.87 ($2.62), it is up from just A$2.89 ($1.96) this time last year. "It is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced," said Penn in his statement on results. That would presumably allow him to justify his whopping pay rise of 34%, to nearly A$5 million ($3.4 billion), after pay cuts in the preceding two fiscal years.
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— Iain Morris, International Editor, Light Reading