2019-12-16 12:26:151970-01-01 00:00:00

Telstra Job Cuts

Australia’s leading telecommunications company – Telstra Corporation Limited – is set to axe a quarter of its contractors over the next two years in an attempt to adhere to chief executive Andy Penn’s ‘make or break’ T22 strategy. The newly disclosed cuts show the extent to which the company is willing to reduce overheads as cut-throat competition and new technology continues to place pressures on its mainstay fixed-line businesses.  

In a bid to cut costs and simplify functions, the eradication will reportedly see 10,000 contractor roles expire on top of the 8000 cuts to Telstra’s permanent staff announced last June. By 2022, Telstra will culled close to 20,000 roles, tightened management structure and slimmed its product line from 1800 plans to just 20. In Mr Penn’s recent address – a year on from the unveiling of T22 scheme – noted that the program is regarded as Telstra’s ‘most profound change.’

Key Takeaways – T22 Plan

I often have reservations at times about using the word ‘transformation’ as it is often overused. However in the case of the Telstra 2022 (T22), early success of the strategy holds promising signs for the firm.

For what has been regarded as a significant time’ throughout the organisations lifecycle, gradual evolution remains the primary focus of the T22 plan. However, for Telstra, the plan consists of corporate re-thinking. Primarily, Telstra will radically aim to simplify its product offerings, with the intent to eliminate customer pain points and create attractive digital experiences. Secondly, Telstra will aim to establish a standalone infrastructure business unit to drive performance and provide future optionality post the NBN rollout. Additionally, Telstra will also aim to simplify its business structure and work towards empowering and serving its customers. Finally in a manner more applicable to the article, Telstra will take part in an industry leading cost reduction program and portfolio management.

For what was initially perceived as being costly, painful and disruptive, the markets initial response was punitively negative, perhaps more focused on the lowering of the guidance for 2019 revenue and earnings prior to its inclusion of the restructuring costs. At a Morgan Stanley event, Mr Penn acclaimed that rationalising its workforce hinges on Telstra’s T22 transformation plan, especially due to the National Broadband Network made more roles redundant inside the telecommunications sector.

The critically acclaimed, Penn strategy is in tune with the thought that those in the market who believed that in order to soften Telstra’s demise in a post-national broadband network environment, the company would need to accelerate its cost-reduction programs in order to create a better demarcation between its infrastructure-heavy past. The structural aspect of the strategy involves the creation of a new unit housing Telstra’s infrastructure.

Share Price Movement

The Telstra Corporation Limited (ASX: TCL) share price to date, has continued its upward run and has hit a new high of $3.66 today. This in other terms meant that the company share price rose 28% since the start of the New Year.

Through firms restructuring, Investors have been drawn to Telstra’s shares thanks to its successful implementation of its T22 strategy. The supposed eradication of 10,000 contractors as previously mentioned sheds light upon the continued support of the T22 strategy. Additionally, the return rational competition in the industry and the ACCC’S decision to reject the merger of the Vodafone-TPG Australia further cemented Telstra’s upward growth.

Fourth Industrial Revolution

In Mr Penn’s address at the Morgan Stanley Australia Summit in Sydney, a large portion of his speech was largely aimed at the digital disruption and the rise of 5G network, predicting that the world was at the dawn of a ‘fourth industrial revolution. Telstra’s shift towards an early start on the construction of its 5G network – both in terms of domestic and international market standards – Mr Penn was forwardly claimed that it was building the network with no clear intention as to how to the 5G would be used.

With constant reference to the prior 4G network, Mr Penn furthered address by saying that “When we launched 4G nobody knew for sure how it would transform video streaming to the point today where video makes up the majority of traffic on 4G. It will be the same with 5G.”

Another key part of the T22 strategy is the shift to a more ‘agile’ way of human and resource management which steers away from a more traditional hierarchical, department-based ways of working, replacing them with much more flexible methods. Mr Penn said this shift in management structure would be introduced “at scale across business” from July 1.

In essence, Penn’s recent decision to cut more than 10,000 jobs was a brave – and costly – but a charismatic move that bears telstra shareholders in mind. Telstra is reportedly going to sacrifice somewhere around $500 million worth of revenues over the coming years in order to make its offerings more competitive.

Although the strategy does not forwardly address the question of where Telstra’s growth may come from, the company has chosen to put its profits ahead of its people. The cut of 10,000 jobs today serves as a means of the effective execution of the T22 plan. Should the plan come to fruition, it could ultimately lay a platform for more effective business and further provide the groundwork for an exciting 5G environment whose boundaries are yet to be defined.

By Jordan Nikopoulos

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