Australian telco Telstra has announced steady progress for its T22 restructuring plan, allowing it to retire AUS$500 million of legacy IT equipment and bring forward 6,000 job cuts to 2019.
The restructuring plan, T22, was introduced during June 2018 in an effort to simply the structure of the business and improve profitability. The plan is to remove 8,000 roles in total from the business, through replacing legacy systems, digitising certain processes and simplifying the management structure of the business.
According to Telstra executives, who’s jobs are seemingly secure, the firm had become a burdensome beast and needed streamlining. This plan was set in motion not only to reduce the complexity of the organization, but also deliver AUS$2.5 billion in cost efficiencies by 2022.
In today’s announcement, 6,000 of the planned redundancies have been brought forward from 2020 to 2019, increasing the restructuring costs for this financial year by AUS$200 million and introducing a AUS$500 million write down of the value of its legacy IT assets. Investors might not have expected such a hit in 2019, but the news should not have come as a surprise.
“We understand the significant impact on our people and the uncertainty created by these changes,” said CEO Andrew Penn. “We are doing everything we can to support our people through the change and this includes the up to $50 million we have committed to a Transition program that provides a range of services to help people move into a new role. We expect to have announced or completed approximately 75 percent of our direct workforce role reductions by the end of FY19.”
According to Penn, plans are on track and the majority of the work is behind the team. Employees are yet to discover their fate, however the consultation is expected to finish in mid-June
|Headcount||FY 2018 total revenue||Revenue per employee|
All figures in US Dollars
While Telstra executives might not like the balance of the spreadsheets as it stands, you can clearly see from the table above it is not in the worst position worldwide. Restructuring plans are certainly having more of an impact at some telcos, take BT for example, though some might be aggrieved when being forced into redundancy.
That said, NPAT (net profit after tax) for 2018 was AUS$1.2 billion, 4.1% of total revenues. When compared to Verizon, where profits represented 8.1% of total revenues, or Telefonica where it was 7.4% for 2018, you can begin to see why the management team is under pressure to find efficiencies across the business.
Redundancies, while never pleasant to talk about, are commonplace in the telco industry and will continue to be so. As businesses evolve, more processes become automated and more technology becomes redundant. This will have an impact on any workforce, but when you consider the complexities of managing a network or securing the digital lives of customers, the demand of digitisation becomes more apparent for the telcos.
Unfortunately for Telstra, it also happens to operate in an environment which makes delivering connectivity incredibly challenging and expensive (i.e. the scale of Australia and the geographical isolation of some communities). Add in the fact it will now longer be able to work with Huawei or ZTE, the vendor pool becomes smaller, adding more financial risk to the procurement channels. All of these factors add up to more financial outlay when it comes to the business of delivering connectivity, and pressure to improve operational efficiencies.