Why Telstra Can’t Find Its True Calling — The ‘T22 Strategy’

In today’s Money Morning…not one, not two, but three Telstras…clutching at straws…pandemic resilient…it goes to show that a big shift in energy is already happening…and more…

How much more can Telstra shareholders bear?

How many times is Telstra going to transform itself?

How much should each transformation cost?

If you didn’t know any better, you’d think these questions would’ve surfaced in the past 24 hours. A response to the declaration from Telstra itself that they’re on the cusp of a major restructure. The ‘T22 Strategy’ as it’s known.

Because while the phrase T22 may not be new, Telstra’s plans certainly are…

But I’m getting ahead of myself.

Back to my original point, these questions that I’ve quoted aren’t in relation to T22 at all. In fact, they were written in The Sydney Morning Herald over a decade ago, back in August 2010.

And as the article continues, the fed-up tone only grows more exasperated:

The market was taken by surprise at the company’s announcement that it needed to reinvent its newly reinvented self and that the investment required to achieve this would mean its earnings would go backwards by a high single digit amount.

The systems that Telstra was heralding back in 2005 would have the company so refining its customer knowledge that it would almost market to us on an individual basis.

Current management is now engaged in a bit of revisionism — or a different story at least.

The new chief executive, David Thodey, is starting a new “journey” to find this elusive customer.

Well, here we are again. This time with Thodey’s successor (Penn) borrowing a leaf from his book. Promising that Telstra is in need of a new transformation…

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Not one, or two, but three Telstras

The point I am trying to make is that Telstra has changed a lot over its lifespan.

But in the past decade in particular it felt like — at least in my view — that Telstra has stalled. In fact, if you look at a graph of its share price, you’ll see exactly what I mean.

Granted, it doesn’t exactly tell the whole story. After all, Telstra has different strengths and weaknesses compared to the company it was a decade ago. Largely due to the sale of its fixed-line network to the NBN.

A subject that is still a sore point for long-term shareholders, I’m sure. Not that Telstra really had a say in the matter.

Anyway, today we now find ourselves on the cusp of yet another change for Telstra. The beginning of its T22 era. A shakeup that management itself has dubbed ‘the most significant in Telstra’s history and the largest corporate change since privatisation.

Bold words, but whether Penn will be able to live up to them will only be revealed in time. Not a lot of time though…

By the end of next year, Penn hopes to turn Telstra from one company into three. Dividing its assets into the previously rumoured ‘InfraCo Fixed’, as well as the newly unveiled ‘InfraCo Towers’ and ‘ServeCo’.

To simplify, InfraCo Fixed would hold all of Telstra’s physical infrastructure. Including its subsea cables, data centres, fibre lines, and exchanges. Any wired connection would likely fall within its wheelhouse.

Towers on the other hand would retain all the physical mobile network assets. Namely the telecommunication towers that cover their national grid. The backbone of their cellular and wireless internet services.

And finally, ServeCo will essentially take on any and all customer-related duties. Working on product and service sales, development, and experience. Crucially though, ServeCo would also be the one to retain control over the radio access network and spectrum allotment. The intangible, but most important part of their cellular network.

So, why is Telstra doing this?

Well, if you listen to the rumours, it’s because they may be planning to buy back the NBN assets. Perhaps looking to demerge their infrastructure assets now in order to prevent any antitrust issues.

But that seems far too ambitious in my view.

No, I think this is Telstra just searching for direction once more. A search that has haunted this company for most of its corporate life.

Clutching at straws

See, if you can’t already tell, I’m sceptical about this T22 plan.

In fact, I’m sceptical about Telstra in general.

They’ve been one of the most stale and directionless companies for years now, if not decades. And while they certainly haven’t crashed and burned, they haven’t exactly impressed either.

There have certainly been glimpses of potential, but none that have been sustainable. At every turn, something or someone has led to serious issues for the telco. Which, subsequently, leads to a new search for direction and a new restructure.

It’s the same old pattern with the same old results. All the while dragging shareholders along for the ride.

Credit where its due though, T22 sounds like it will take Telstra to new extremes. With expansion into both the energy and health sectors flagged as potential candidates. As they explained yesterday:

I also wanted to take this opportunity to share with you we are exploring the opportunity to re sell energy to our consumer customers. These plans are at an early stage but we about [sic] to apply for the necessary licenses and you will therefore become aware of them in the coming weeks.

Further adding:

In the last nine months the digital economy has exploded through activities such as tele-health, online learning, remote working and e-commerce.

Through the work we have already done with T22, we are exceptionally well placed to respond and now lead in this new environment.

To me, these plans reek of desperation. A plan that seems rooted purely in following a trend rather than setting one. Something that a company of Telstra’s size should be doing.

I’m not going to say Telstra will fail, but I certainly wouldn’t be surprised. This T22 plan feels too disjointed and half-baked. As if they’re spreading their assets and talents thin.

For that reason, I think this announcement is far bigger for the rest of the telco sector. It reads like a declaration that Telstra is giving up and giving way to its competitors. Opening up an opportunity for other providers to fill — and not just for the bigger players like Optus and TPG/Vodafone.

T22 could open the floodgates to a myriad of up-and-coming companies. Whether they have their own network or not.

Because as that Sydney Morning Herald article concluded a decade ago:

Thodey calls it a challenging environment in which the biggest challenge is to retain and grow customers.

That challenge may be about to get a whole lot harder. Because if T22 fails — it may be the last restructure that Telstra ever gets.

Regards,

Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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