Telstra restructure a correct step: Paul Budde

Job cuts will create greater industry opportunity

While Telstra’s restructure, announced yesterday, has attracted negative attention, the telco’s willingness to embrace the transformation is a major step in the right direction, according to independent industry analyst, Paul Budde.

The telecommunications industry, like many others, is currently experiencing dramatic transformation processes forced by new technologies.

“If you look at the Googles, Facebooks, and Skypes of this world, there is dramatic change in the way telco is conducted, and to a large extent it is bypassing the old telephone system,” Budde said.

For this reason, it is critical for Telstra to take cost out of its existing business in order to survive, and shift beside technology developments by adopting new business models. This is the key challenge for not only Telstra but all telcos looking to become competitive against the likes of Google.

“A company like Google operates with perhaps 10 per cent of the cost of a traditional telco, so if you start seeing that these companies are going to be your major competitors, you see their cost structure is a million times better,” Budde said.

Reinvestment is an element of the cost evaluation. For example, Budde said Telstra has openly spoken about new developments in relation to Cloud computing, NBN, datacentres, and IT software, all of which it no doubt will continue to exploit to generate new revenues.

Out with the old to create the new

Telstra’s restructure is expected to affect half its 38,663-person workforce, and a reduction in headcount is set to follow.

The Age reports Telstra admits this will occur, but refuses to comment on the number of cuts.

While this has been the focal point for media and public, Budde is adamant the redundancies will benefit the larger IT and telco industries.

“Old industries are going, but instead you see new ones,” he said. “There are more than one million people in smartphone applications globally and that industry didn’t exist five years ago. The new economy deletes old jobs, but creates far more new jobs.”

While not all of these jobs will be with Telstra, it will spur a democratisation whereby new positions will be more widely spread through the industry.

For businesses which have a relationship with Telstra, the next move is diversifying rather than playing the waiting game. According to Budde, businesses which wait too long will disappear; those that look for the opportunities in advance and grab them will cope as the major transformation progresses.

The trigger point

For Budde, Telstra is doing all the right things, and this was triggered by the employment of David Thodey as CEO in 2009. While Budde believes the changes will take a decade longer, “Telstra hasn’t waited to become another Kodak or Nokia.”

“Yes there’s pain and problems, but the future for Telstra is very bright because it embraces the transformation process and doesn’t fight it.”

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