Telstra slashes customer product offering; cuts 8000 staff

ASX-listed telco announces a major overhaul of its business model with plans to drop 1800 product offerings down to 20 and remove thousands of jobs from the organisation

Telstra is cutting 8000 staff and contractors, slashing customer plans and pricing and creating a new infrastructure business unit in a strategy shake-up it claims will simplify structure and cut costs while improving customer experience.

In a statement to the ASX today, the company unveiled its new Telstra2022 strategy, based around four main priorities. The first is drastically reducing product offerings from 1800 to 20, a move aimed at eliminating customer pain points and creating all digital experiences, Telstra CEO, Andrew Penn, said.

The telco is also creating a standalone infrastructure business unit, InfraCo, for its traditional fixed-line assets, paving the way for a demerger or new strategic investment following the completion of Australia’s National Broadband Network (NBN). The new division will control assets worth about $11 billion with annual revenues of $5.5 billion.

On top of this, Telstra said it’s working to simplify its structure and ways of working in a bid to empower people and better serve customers. The fourth pillar is a cost reduction program and portfolio management overhaul.

The decision will see 8000 employees and contractors cut from Telstra’s books over three years, and a reduction in up to four layers of management, the company stated. There is a strong focus on executive roles initially, and no bias will be shown towards offshore or onshore, regional or metro, Penn said during a live interview on ABC news this morning.

To support this, Telstra has outlined a $600m restructuring provision to support the changes needed to be made, on top of its $50m transition program. In addition, the company expects the increase of its productivity program will rise by $1 billion to $2.5 billion cost out by FY2022.

Penn claimed the strategy will fundamentally change the nature of telecommunications products and services in Australia.

“As an industry, we’re at a tipping point; the nature of telecommunications is unsustainable, and it has to change. Telstra is going to lead that change,” Penn said, noting the rate and pace of change is increasingly being driven by technological innovation and competition and companies must respond and adapt accordingly.

Radically cutting the product offerings and restructuring is about dealing with all the complications, frustrations and complexity that exists in telecommunications today, Penn continued. He pointed out there are $500m in charges and costs for customers being given away in terms of service revenue under the changes.

“If we can fundamentally change that and disrupt ourselves, we will change the experience for customers,” Penn said. “What we are constantly doing is dealing with issues and complications we’ve created for customers because of the way we designed the products.”

Telstra expects customers will start to benefit from these changes in July when it launches ‘peace of mind’ data across new post-paid plans to remove excess data charges. Four major product and service experiences will then be announced between now and June 2019, and all customers will be moved to the new product range by 30 June 2021.

Telstra added the lost revenue should be offset by more services per customer and lower costs from a more simplified business model.

On the B2B front, Telstra also plans to at least halve the existing product portfolio in the next three years and said the emphasis will be on digital-first, software-based platforms and better leverage of the Internet of Things. This will be possible because of the new tech stack for mid-market and enterprise customers built over the past year, the company stated.

In a statement, Penn further said he and the executive team have been working hard preparing Telstra for this new market dynamic while not “acting precipitously”.

Telstra has been experiencing a rapid decline in its share price over the past year on top of a string of embarrassing and highly frustrating network outages nationally, the most recent in May effecting millions of customers. At the same time, the traditional fixed line business model is being disrupted off the back of the NBN rollout, while the mobile network is being challenged by aggressive investments from rivals such as Vodafone, Optus and TPG.

In its announcement, Telstra also flagged its ongoing investment in 5G, the next-generation mobile network technology.

More Telstra stories from CMO:

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