Telstra chief executive Andy Penn insists he has a vision to make making the country’s largest telecommunications player a global tech titan, and says the group is already taking major strides in areas such as cloud computing, cyber security, the Internet of Things and media content distribution.
Speaking to The Australian Financial Review after the company unveiled the first of a series of multimillion-dollar cyber security operations centres, Mr Penn said he has a clear vision of how Telstra can become intrinsic to the rollout of a number of major tech trends engulfing businesses around the world.
While he has been pressed to come up with fast answers to fill the $3 billion hole in annual earnings that will emerge because of the national broadband network taking its position as a wholesale internet provider, he said Telstra was already well advanced in its push into realms inhabited by the likes of Microsoft, Amazon Web Services (AWS) and Google.
“Our strategy does not start from the fact of the NBN, or a government decision six or seven years ago … we are making strategic choices that start with assessing how customers today are using the network and how we can better support them,” Mr Penn said.
“Some say that all companies are going to be technology companies, but we are different in the sense that the traditional worlds of telecommunications and computing are converging, and there is no technology innovation today that is happening that doesn’t depend on underlying connectivity that we provide.”
Telstra has been attempting to give itself an image makeover for more than a year, with a marketing overhaul geared towards making potential clients and investors view it as part of the booming tech sector. But Mr Penn insisted the shift goes a lot deeper than flashy advertisements, and said it is not trying to copy or compete with the US giants.
His plan is based on making Telstra a key partner for the likes of AWS and Microsoft in the cloud computing world, packaging up their products and adding in its own areas of specialisation, such as security managed services.
Then it will also have its finger in the emerging startup-led areas such as the Internet of Things, where it is providing networks for a huge array of sensors and smart devices that will take advantage of innovations like driverless vehicles and automated asset management.
“When an organisation is looking to take their operations into the cloud to get the great productivity opportunities, they also need to get all their data in and out, and do it securely, that is a telecommunications problem to solve,” he said.
“We host AWS in our cloud capability over our network, but most sophisticated organisations will need [Microsoft] Azure as well, and their own private cloud.
“We can provide the capacity to manage all of those cloud services through a single orchestration system, and then have the network and managed security offering around it is very powerful, and we are building genuinely world-class options.”
Telstra’s annual results showed that revenue its Network Applications and Services (NAS) division, which comprises a lot of its existing tech efforts, grew 30.6 per cent to $3.4 billion in the last year.
Mr Penn said this rapid growth was sustainable, but did not mean that Telstra’s existing business lines would be neglected. He said the company is particularly well-positioned because its new tech businesses are underpinned by the kind of network investment it will need to make to keep its lead in mobile services in the coming 5G era.
Managing director of research firm Foad Fadaghi said Telstra was showing savvy by investing in areas like enhanced cyber security capabilities, but needed to balance it by building a lead in 5G comparable to when it rolled out 3G, in order to ensure long-term shareholder value.
“Telstra needs to carve out its own place in the technology world, it is hard to compare it with multinational tech companies directly even if there is some convergence,” Mr Fadaghi said.
“There is undoubtedly a huge opportunity for Telstra to partner with leading technology brands and bring new services to Australian business and consumers, but in the post-NBN world, its mobile network is going to become even more strategic and 5G leadership will be critical to its fortunes.”
Mr Penn conceded his remit at CEO in an era when Telstra is looking to spread its influence much more broadly than it has in the past, makes his job more complex than that of some of his recent predecessors.
When he turning his attention to the adoption of the Internet of Things he said Telstra was seeing great opportunity with clients in industry verticals ranging from mining and resources to agriculture and logistics.
However he said the organisation was structured to ensure it wasn’t spread too thin or unfocused.
“It is very different to just phone calls and texts 10 years ago, it is a completely different paradigm,” Mr Penn said.
“It is a lot broader, but that is fantastic because as a company we can provide so much resource, capability and support for customers based on how people are using the network today.”
Dividend dust settles
The dust is still settling on Telstra’s controversial decision to move away from tradition in another area and slash its much-loved dividend by 30 per cent.
Shares were sold off after the announcement, dropping from $4.33 the night before its annual results to $3.87 the following evening. At the end of last week the price had recovered slightly to $3.92, and Mr Penn said he was satisfied with how the decision had been received by stakeholders.
He said there was no question that Telstra had needed to move away from a situation where it was often paying out more than 100 per cent of its profit, to move to a 70 to 90 per cent payout ratio band.
“I haven’t had a single person say to me that it was the wrong decision, everyone understands why we needed to do that, because we need to retain the flexibility to invest in the future to support our strategy,” Mr Penn said.
“But I do want to assure people as well that we are still looking to pay a very significant dividend, 70 to 90 per cent is not a low payout ratio when you compare us to our international peers and other large companies in Australia.”
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