Telstra to cut at least 8000 jobs

Telstra is set to cut at least 8000 staff and carve out many of its infrastructure assets into a new standalone business unit under sweeping changes announced today.

A market filing reveals a large-scale reorganisation of the telco under a new strategy called Telstra2022.

It comes as the telco - and particularly chief executive Andrew Penn - was under increasing pressure to produce a strategy to work the company out of a financial rut.

The biggest news is a planned 30 percent reduction in Telstra’s labour costs, which the telco said would result in a “net reduction of 8000 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,” Telstra said.

“Telstra will also invest in approximately 1500 new roles to build new capabilities required for the future, in particular the shift to new engineering capabilities including software engineering and information and cybersecurity”.

The net reduction is likely to mean the number of jobs to be cut is higher than the 8000 number in the filings.

Telstra said it had allocated $50 million to a “transition” program for affected employees.

It said the reorganisation would cut out between two and four layers of management across the telco.

Penn said the telco wanted to “flatten” its structure.

“In the future our workforce will be a smaller, knowledge-based one with a structure and way of working that is agile enough to deal with rapid change,” Penn said.

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

“We are committed to talking to impacted staff first and ensuring we support them through this period”.

Carves up infrastructure assets

Telstra also said it will create a “standalone infrastructure business unit” that will be called Telstra InfraCo.

The unit will take over running the company’s data centres, fibre, HFC, subsea cables, exchanges, poles, ducts and pipes.

“Its services will be sold to Telstra, wholesale customers and NBN Co,” the telco said.

InfraCo will handle commercial works activities for NBN Co as well as Telstra Wholesale, and will have a workforce of around 3000 people.

Assets under its watch will be worth around $11 billion.

Telstra said the unit would not be handed the company’s mobile network, nor some backhaul fibre assets, both of which the company said are core to its 5G strategy.

“Importantly, Telstra InfraCo will provide significant optionality for Telstra in the future for a potential demerger or the entry of a strategic investor once the NBN rollout concludes,” the company said.

Telstra said it would hire a new CEO to lead InfraCo, who will report directly to Telstra CEO Andy Penn.

Starts again on entire product portfolio

Telstra is also set to axe every single consumer and small business plan it has - currently over 1800 different types - and replace them a menu of just 20 options.

The company will begin by scrapping all excess data charges from July this year, and then will incrementally announced the rest of the changes in four tranches through June 2019.

“By June 2019, Telstra customers will experience a radically simplified experience made possible by new intuitive digital platforms, with all customers being moved to the new product range by 30 June 2021,” the telco said.

Enterprise customers will also see major changes to the product portfolio available to them, with options cut in half.

“Over the past year, Telstra has built a completely new technology stack for mid-market and enterprise customers, which will enable these changes,” the telco said.

“Telstra will use the natural momentum in the business to migrate customers to the new product suite, enabling it to stop the development of products on legacy systems, and aggressively rationalise old applications and services”.

It revealed it wants to either "decommission or contain" 700 apps in its portfolio by 2021.

NBN costs to rise by $1.5bn

Telstra has warned repeatedly in recent months that the NBN is eating into its revenue and growth.

Penn warned in April that the telco couldn’t continue to absorb increases in NBN wholesale pricing, calling for price regulation "as quickly as possible".

Last month, it warned NBN-related financial pain would extend well into 2019, affecting its financial results.

Today, Penn said he expected Telstra would have to “absorb more than $1.5 billion of increased NBN AVC/CVC costs … as we further migrate to the NBN”.

This is likely to be the result of NBN Co’s recent changes to its price model.

Those changes have already forced rival Optus to hike its broadband prices to cover rising NBN wholesale costs.

Telstra’s language that it will “absorb” extra costs could put it at odds with the rest of the industry, which has until October to make a decision on how they will price NBN services.

NBN Co's price changes, announced in December last year, are set to fundamentally change Australia's retail ISP landscape.

Under pressure to close the gap on its financial targets and to improve user experience, NBN Co has set $45 a month as the minimum wholesale cost of its new price plans. 

This is a fundamental change to the market, which was used to paying up to $60 a month retail for broadband in the ADSL era.

Scales agile

Telstra said it will "scale up" its use of shared services across business units to stop common functions from being repeated.

Like other blue chips such as the banks, it also plans to accelerate its use of agile methodologies outside of IT, in the hope that it makes teams leaner and more efficient.

The company has been on a long, slow journey to agile since 2010.

The telco said it wants 80 percent of its agile teams to achieve level three agile maturity by FY20. 

This is the highest level in the agile maturity model and signals the team is focused on process improvements and optimisation.

The telco started its strategy day briefing today by saying it was its "time to move ahead".

"We’ll wonder how we ever operated the old way," the company said.