Telstra [ASX:TLS]’s share price dropped by 1.08% today.
Telstra is Australia’s leading telecommunications company. It provides mobile and home phone plans and devices, as well as broadband and paid television all across the country. It’s one of the largest and most recognised stocks on our market.
With approximately 150 subsidiary businesses across the globe, it’s troubling to know this still isn’t enough to keep Telstra’s shares in the positives.
Why Telstra’s share price fell
Perhaps this loss of value can be explained by the new marketing strategy announced by the company on 20 June.
With the introduction of the 5G network around the corner, Telstra has pulled out the big guns to ensure they are the leaders of the 5G surge.
In a letter addressed to shareholders, this strategy — labelled ‘Telstra2022’ — aims to:
‘lead the Australian market by simplifying its operations and product set, improving customer experience and reducing its cost base.
‘…We understand there are challenges in the short term but we remain confident of the long-term outlook for our country and believe the changes we are making will help ensure Telstra’s success in the future.’
There are multiple actions involved in this new strategy. The most significant is a $1 billion increase to their productivity program and monetising up to $2 billion in assets within the next 24 months.
These could account for the recent negative response in share value.
But most troubling is that this new initiative involves an 8,000 net reduction in employees, and a possible reduction of up to four layers in management.
Telstra believe this is a sacrifice worth making, for the sake of the company.
CEO Andrew Penn has stated:
‘We will take a bolder stance and use the disruption in the telecommunications industry to lead the market for the benefit of our customers, employees and shareholders.
‘In this [technologically innovative] environment traditional companies that do not respond are most at risk.
‘We are now at a tipping point where we must act more boldly if we are to continue to be the nation’s leading telecommunications company.’
Penn has also ensured the affected staff will be given support by the changing company.
But what does ‘simple’ mean for the future?
The most exciting announcement as part of this new strategy is the implementation of a new infrastructure business unit, ‘InfraCo’.
This unit will provide opportunity for a future demerger after the NBN initiation.
In a few years’ time, Telstra could sell ‘InfraCo’ for up to $15 billion, making almost two-thirds of their profit from mobile phones alone.
That’s a worthwhile dream for shareholders. But in the short term, the recent bad news continues to weigh on the share price.
Editor, Money Morning
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