6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date: For the period ending 17 May 2006
TELSTRA CORPORATION LIMITED
ACN 051 775 556
242 Exhibition Street
Melbourne Victoria 3000
Australia
Indicate by check mark whether the registrant files or will file annual reports under cover
of Form 20-F or Form 40-F.
Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934
If Yes is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
Telstra Corporation Limited ABN Amro Investor Conference
April 2006 |
These presentations include certain forward-looking statements that are subject to various
risks and uncertainties. Actual results, performance or achievements could be significantly
different from those expressed in, or implied by, these forward- looking statements. Such
forward-looking statements are not guarantees of future performance and involve known
and unknown risks, uncertainties and other factors, many of which are beyond the control
of Telstra, which may cause actual results to differ materially from those expressed in the
statements contained in these presentations. For example, the factors that are likely to
affect the results of Telstra include general economic conditions in Australia; exchange
rates; competition in the markets in which Telstra will operate; the inherent regulatory risks
in the businesses of Telstra; the substantial technological changes taking place in the
telecommunications industry; and the continuing growth in the data, internet, mobile and
other telecommunications markets where Telstra will operate. A number of these factors are
described in Telstras Annual Report and Form 20-F. |
All forward-looking figures in this presentation are unaudited and based on AGAAP. Certain
figures may be subject to rounding differences. All market share information in this
presentation is based on management estimates based on internally available information
unless otherwise indicated.
laimer |
Telstra the leading player with scale |
Telstra is well positioned to take advantage of truly
converged communications... |
I Telstra offers a full suite of communications services |
· Wireline Unparalleled reach to customers across Australia |
· Wireless already rolling out one of the worlds most advanced networks |
· Strong advertising & search capability via Sensis |
· BigPond Australias largest broadband provider |
I The strongest brand name in the industry in Australia |
· The highest market share in Australia while proactively managing offshore
opportunities |
· Ability to drive economies of scale |
· Strong balance sheet & cash flows allow us to fund growth opportunities |
To know our customers and meet their needs better than
anyone else |
· Driving a new customer experience |
· Driving new revenue sources |
· Driving reduced complexity in the business |
· Driving a new competitive culture |
· Driving a new regulatory agenda |
Telstras transformation will deliver... |
?? 1 click, 1 touch, 1 screen, 1
button, 1 step |
?? Simplified and integrated
customer experience |
?? Leading wireless network |
Biggest network in Aust |
Best in-building coverage |
?? Australias largest IP network |
Common standards &
platforms |
Faster development and
deployment of services |
?? Australias leading ISP and
services entity |
?? Targeting 55% market share
by FY08 |
?? Australias leading
information resource |
?? 50 years of experience
managing Australias
leading local business |
What is market based management? |
Set of business principles with strategic concentration on the
most important asset of the company: the customer |
Focus on competitive differentiation in attracting,
retaining, and up/cross selling customers: developing vs.
selling to a customer |
· Requires deep understanding of the unique needs of customer segments |
· Understanding based on extensive customer research to determine segments |
Every aspect of market mix designed to deliver value by meeting
the unique needs of segments |
Market structure determines organisational design: every employee
recognises his/her job is providing value to the customer |
Emphasis on profit and loss measurement at the customer segment level |
Seven segments defined with very different needs |
Telstras competitive advantage delivering value |
greater understanding of
customer needs |
leverage exclusive BigPond and
Sensis content to deliver a
richer customer experience |
customers are
willing to pay for |
ability to access content,
services and applications
across multiple devices, eg
mobile, laptop, PC, home phone |
national coverage over both
fixed and high speed national
3G wireless networks |
BigPond integrated content |
Telstra M2006 Mobile
service |
Exclusive LIVE video
streams 8 streams
including Channel 9 and
direct feeds from athletics,
swimming etc |
Video Archives, highlights |
Sensis driven info services |
Differentiated content across multiple
devices |
Telstra Mobile BigPond Mobile B3G |
Narrowband Site
(available to all) |
Telstra M2006 Broadband
service |
Watch live, check schedule, set
reminders, browse and watch on
demand content |
Focus is on live video coverage of
Games and on demand highlights
provision |
Gives ability to own the daytime office
worker environment |
Exclusive to BigPond Broadband
members (ADSL, cable, satellite and
EVDO customers) |
Unmetered for BigPond Broadband
customers |
Sensis integrated content |
?? FY10 will be the same level as of Jan 1st 2006** |
?? 2.0% to 2.5% p.a. (FY10 vs. FY05) |
?? 20-30% of new revenue growth by FY08 |
?? Down 6,000 8,000 over 3 years |
?? Down 10,000 12,000 over 5 years |
?? Falls to 12% of revenue in 2010 after |
$2.5B $3.5B bubble in FY06-FY08 |
?? 3-5% p.a. growth through FY10 |
?? Intention to pay 28 cps to FY08*** |
*Subject to a reasonable regulatory outcome |
***Subject to normal Board considerations |
Telstra Corporation Limited Goldman Sachs Private Client Forum
Sydney April 2006 |
These presentations include certain forward-looking statements that are subject to various
risks and uncertainties. Actual results, performance or achievements could be significantly
different from those expressed in, or implied by, these forward- looking statements. Such
forward-looking statements are not guarantees of future performance and involve known
and unknown risks, uncertainties and other factors, many of which are beyond the control
of Telstra, which may cause actual results to differ materially from those expressed in the
statements contained in these presentations. For example, the factors that are likely to
affect the results of Telstra include general economic conditions in Australia; exchange
rates; competition in the markets in which Telstra will operate; the inherent regulatory risks
in the businesses of Telstra; the substantial technological changes taking place in the
telecommunications industry; and the continuing growth in the data, internet, mobile and
other telecommunications markets where Telstra will operate. A number of these factors are
described in Telstras Annual Report and Form 20-F. |
All forward-looking figures in this presentation are unaudited and based on AGAAP. Certain
figures may be subject to rounding differences. All market share information in this
presentation is based on management estimates based on internally available information
unless otherwise indicated.
Disclaimer |
1
Telstra the leading player with scale |
Telstra is well positioned to take advantage of truly
converged communications... |
?? Telstra offers a full suite of communications services |
?? Wireline Unparalleled reach to customers across Australia |
?? Wireless already rolling out one of the worlds most advanced networks |
?? Strong advertising & search capability via Sensis |
?? BigPond Australias largest broadband provider |
?? The strongest brand name in the industry in Australia |
?? The highest market share in Australia while proactively managing offshore
opportunities |
?? Ability to drive economies of scale |
?? Strong balance sheet & cash flows allow us to fund growth opportunities |
...But we need to transform to improve
operational trends |
?? Revenue mix shifting to currently
lower margin products |
?? Intense pricing pressure in a
competitive market |
?? We have too many of
everything |
?? Regulation is increasing costs
and hampering growth |
2
To know our customers and meet their needs better
than anyone else |
?? Driving a new customer experience |
?? Driving new revenue sources |
?? Driving reduced complexity in the business |
?? Driving a new competitive culture |
?? Driving a new regulatory agenda |
What is market based management? |
??Set of business principles with strategic concentration on the most important
asset of the company: the customer |
??Focus on competitive differentiation in attracting, retaining, and up/cross
selling customers: developing vs. selling to a customer |
??Requires deep understanding of the unique needs of customer segments |
??Understanding based on extensive customer research to determine segments
with divergent needs |
??Every aspect of market mix designed to deliver value by meeting the unique
needs of segments |
??Market structure determines organisational design: every employee recognises
his/her job is providing value to the customer |
??Emphasis on profit and loss measurement at the customer segment level |
3
Telstras competitive advantage will deliver value |
greater understanding of
customer needs |
ability to access content,
services and applications
across multiple devices, eg
mobile, laptop, PC, home phone |
customers are
willing to pay for |
leverage exclusive BigPond and
Sensis content to deliver a
richer customer experience |
national coverage over both
fixed and high speed national
3G wireless networks |
BigPond & Sensis integrated content |
Telstra M2006 Mobile
service
Telstra M2006 Broadband
service
Differentiated content across multiple
devices
Telstra Mobile BigPond Mobile B3G
Narrowband Site
(available to all)
BigPond
Broadband |
4
?? Issue structure and level of pricing |
?? Our position $30 averaged undertaking lodged |
?? Next steps Government decision expected early April. ACCC assessment of price level
undertaking expected shortly after |
?? Issue lack of regulatory certainty of commercial return on new investments |
??Our position FTTN on hold as we seek new investments to be regulated like all other
industries |
?? Next steps discussions with ACCC and Government continuing |
?? Issue Legislation requires plans effecting transparency and equivalence re key |
?? Our position- ensure application of the principles do not impede our ability to fairly
compete in the market |
??Next steps Minister response due end of June to our amended plan |
After transformation...the new Telstra |
?? New Hi Speed national wireless network |
?? New integrated products/services |
?? New customer experience power of one |
?? Biggest networks in broadband, mobiles & IP |
?? Simple pricing easy to use |
?? Attractive Asia position |
5
*Subject to a reasonable regulatory outcome
**Annualised
***Subject to normal Board considerations |
?? 2.0% to 2.5% p.a. (FY10 vs. FY05) |
?? 20-30% of new revenue growth by FY08 |
?? FY10 will be the same level as of Jan 1st 2006** |
?? 3-5% p.a. growth through FY10 |
?? Down 6,000 8,000 over 3 years |
?? Down 10,000 12,000 over 5 years |
?? Falls to 12% of revenue in 2010 after
$2.5B $3.5B bubble in FY06-FY08 |
?? Intention to pay 28 cps to FY08*** |
6
TELSTRA
SOL TRUJILLO
11th April 2006
Sydney
TERRY: In the interest of time, I think well start with the lunchtime presentation, while all of
you are eating. The question that Im asked more than any other sort of at the golf club, or at
social drinks, or particularly at the office is What should I do about Telstra? So todays
presentation by the chief executive officer, Sol Trujillo, is very timely.
Earlier on in the lunch, Sol and I were talking about, sort of, how many people in a room like this
might own Telstra. I explained to Sol that there had been a little bit of selling lately, but I
think it would be interesting to are people prepared to sort of indicate, put up their hands if
they are shareholders of Telstra?
For the record for the record, Sol put up his hand.
Sol took over as CEO on 1 July last year. Its been an eventful nine months. Last year the
Government asked if I would be the chairman of the selling group for the T3 sale of the remaining
shares in Telstra. It hasnt been straightforward, but one of the pleasant benefits has been that
Ive had the opportunity to meet and get to know Sol.
Sols CV is set out in the program notes that you were given, and I am not going to repeat it, but
what those notes do show is that Sol has spent his whole career in the Telco industry, in various
aspects of it. And, it seems to me that its this background that has led Sol to ask the questions
at a time of change that has forced all sectors of the Telco industry, and those that regulate it,
that we really need to confront reality.
No one in the investment community could disagree with Sols very strong view that Telstra should
only invest on a basis that provides a proper return on shareholders capital.
Sol, we look forward to your comments today.
(Applause).
MR SOL TRUJILLO, CEO: Thank you, Terry. Its really a pleasure to be here, especially when I saw
so many hands go up. Because Telstra is, in my opinion, if
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not the most important company in Australia, it is one of the most important companies in
Australia. And I say that with a very straight face, and with all the seriousness that I
can share with you. And thats why Im here.
Now, when the job was opened up, I wasnt seeking the job. I was recruited by the Board of
Directors of Telstra. Part of the reason why, apparently, they were seeking me, was the fact that
Ive kind of lived through this movie before. I use that phrase over and over again, in terms of
having seen this movie before, in terms of the changes that are occurring in the telecom industry,
the changes that a Telstra has to go through as it has Government majority ownership moving to a
lesser either point of ownership, or perhaps zero ownership.
Most importantly, because of the transition that is happening technologically, culturally, and
market wise in the business, there is dramatic change thats happening.
If you look at all the telcos in the US, starting in the mid 90s to today, youll see that theyve
undergone a major transformation. And in the case of the US, youve seen literally hundreds, if not
thousands of competitors in the market, consolidating now into a number thats probably one-tenth
what it was 10 years ago. And thats because the economics of providing this kind of service in the
marketplace is very difficult. Because it is a capital intense business.
And so the lesson Ive learned in my 30-plus years in the industry is you have to be very serious
about your shareholders capital. And, I dont take it very lightly when people say, Gee, you
ought to spend money on this or that?, without thinking about our shareholders first, and I like
to put myself in the shareholders shoes, in terms of how to think about it.
So when I was asked to come here, I had a long conversation with the Board of Directors about how
serious were they about the transition that was needed, as we looked at a company like Telstra,
because Telstra is a terrific company. It is a company thats got an iconic brand within this
country, and its a company that is filled literally wall to wall with great people people that
are well intentioned, people that know how to deliver really good service, but a company that, at
the same time, has been hindered in many ways by structures that were created in the 90s, while
Telstra has to operate in 2006 through 2010, in a whole different environment. And that is part of
what we have been talking about, and I personally have been talking about since I got here.
So weve had an agenda for change, and the change is multifold. One agenda item has been this
notion of the regulatory structure. It was created, essentially, in
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1997, and it was created as a temporary phenomena, based upon what people knew in 1995 and
1996, in terms of the nature of the technology, the nature of competitors, the nature of the
economics of the business, and all that was considered at that point in time.
But we are now in 2006, planning for 2010, because our investments that we make -when we talk about
things like fibre to the node, when we talk about things like internet protocol and the networks
that are to be built they are networks and infrastructures that are built over four or five
years. They are not built in four or five months, and they are not done with $1,000 or $1 million
or $100 million. They are done with the B word, and the B word, to me, is a big, big word.
Thats why it starts with B.
So, when we think about the agenda, clearly this notion of the regulatory framework is important.
But I also want to say to all of you, as shareholders, and those of you who might want to be
shareholders, is that thats not the only part of an agenda.
The other part of our agenda is about changing the way that we do business, and Im going to talk
about that, because that is equally important in terms of what we do; and so weve undertaken a
dramatic change that we think will put Telstra at the top of the heap, not just in Australia, but
when you look at us three, four, five years from now, our cost structure, our go-to-market
capabilities, and the kind of innovation that you want to see in this kind of business will be
comparable to any company anywhere in the world.
Now, Ive had the good fortune to compete in the US, and Ive had the good fortune to compete in
Europe, and around the rest of the world, and I know what world class looks like, and Ive run some
companies that were world class. My view is that Telstra can and should be world class in what it
does, because it serves a market here in Australia, a people that really do want the best, and the
infrastructure, and the role that Telstra plays for the economy is so critical and only grows as
time passes, that its imperative that we become world class as a company.
We move from good to great, and thats the agenda and thats the objectives that we have decided
upon as a Board of Directors at Telstra. So when we think about that and now Im talking to those
of you who are shareholders, and those of you who might become shareholders its important to
understand the driving element that I think about in every business, and how important it is when
you think about multibillion dollar investments, when you think about innovation, when you think
about the size of the customer, this notion of scale is very important, and being the biggest.
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So lets take a step back here just for a minute or two, and talk about Telstra, because I
think Telstra is well positioned to take advantage of what we are all calling, in the industry -
and I used to write papers about in the early 90s around this notion of converged
communications.
And convergence is where you no longer think about Telstra as really just a telephone company, or a
company that provides communication services, but its a company that will help you not only
communicate, but also help you be entertained, if thats what you want to do, or to be informed, if
thats what you want to do, or simply to take advantage
of all of those elements, but with one more distinction tied to it, and that additional distinction
is: you shouldnt have to be a technology expert to be able to do all of those things. We should
make things nice and simple for you, right, so you dont have to figure out how to make all these
things work together.
And it should be as simple as what I call one click, one button, one touch, one screen, one call
simplicity that we have to drive within the business. So the way you do that is to take advantage
of the scale position, the broad customer relationships that you have, and to drive innovation
within a company, and thats what we are doing today.
So when you look at Telstra today, we are the largest wireline company in Australia within parallel
reach to essentially touch customers almost everywhere in this country. We have the largest
wireless network already in Australia, but our network, I would say today, honestly, to all of you,
is kind of like those of our competitors. We reach a little bit further out into the regions and
into the bush but, you know, not all that much better today, other than the way that we maintain
it, the way we service it, and some of those kinds of things.
But by the end of this year, you are going to see the most advanced wireless network in the world
right here in Australia. Its going to be high speed, because we are putting in place some
technology that we refer to in the industry as HSDPA -doesnt matter, just think about it as high
speed, thats what the HS is for, and the DPA I cant even tell you what all of that stands for.
But the key point is that here in Australia we will have a nation-wide network that we are calling
city to country, a nation-wide network that, in the ideal scenario, will provide over three
megabits of bandwidths on your mobile phone, right, so if you want to take advantage of downloading
things, receiving images, graphics, whatever it might be, you are going to be able to do that, and
we are moving to a different spectrum range so that you will have even better coverage inside
buildings, and thats when you hear and read about 850, the 850 range. Thats
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what we are going to have. So we are going to have high speed, nationwide, and in-building
coverage that will be unmatched unparalleled anywhere by anybody in this country.
So for anybody that isnt a Telstra customer, taking advantage of our 3G services or in-building
capabilities, all of that, you just are going to be missing out on the best. But thats not going
to be enough, because we are going to be offering some services and capabilities beyond that that
Ill talk about in a minute.
But beyond that then, we also have a business called Sensis, which is the largest Yellow Page and
online advertising business in Australia as well, but we are extending the
capabilities of that business into search as you think about the Googles and the MSNs and the
Yahoo!s and all these other businesses. Today, our business at Sensis does as much search and is
growing just as fast, if not faster, than those other businesses, except for one difference: our
search capabilities are more relevant to an advertiser, because the question I would ask any of you
sitting here, those of you who might be running businesses, and you want to run ads on Google or
Yahoo!, or whatever it might be, you say, Im going to pay for how many eyeballs you are going to
bring to me when people are doing searches?
My question to you is you want to pay for somebody who is looking for who is Einsteins
grandfather? Is that relevant to you, or is it more relevant to pay for somebody that literally is
looking for a lawyer, or looking for a restaurant, or looking for whatever it might be thats part
of the heritage and the nature of our Yellow Page business, except for we are extending it out into
more categories, and all categories literally of what any of us searches for in terms of our daily
lives, and charging them for that.
I think thats a more important value proposition for customers and advertisers ultimately. But
that still isnt enough, because we are also taking our Sensis business one step further, and its
about not only enabling you to find what business youd like to buy from, or in the case of Trading
Post, enabling you to find a product that you might be looking for, but we are going to take it one
step further, which is enabling you to actually do the transaction.
Weve started that with our Trading Post business, but we are going to be extending it again across
our business, but we are going to be taking advantage of our market size, the heritage, the
capabilities that we have in the business.
On top of that then, we have this other business called BigPond. Now, BigPond is our broadband
business today. A couple of years ago we used to have about 37 per cent market share. Today, as of
- I shouldnt say today, but I will say as of our last
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financial reporting period, because I am not going to disclose anything that we havent
already disclosed today if you look back to our last reporting period, we announced that we were
at 43 per cent market share, and that basically on new connections we are taking almost one out of
every two customers that are signing up for broadband today.
Now, think about how significant that is, if you are an investor in Telstra today. In my mind,
having a broadband connection today is like having dial tone 20, 30, 50, 80 years ago, because it
is the connection that enables you to do whatever it is you want to do, whether it be
communicating, being entertained, being informed, whatever it might be that you like doing, playing
games. So we are driving our business hard, prioritised this notion of broadband in terms of our
business, and we do have the best capability in Australia, and we are going to make it competitive
with probably the best anywhere in the world.
We have a brand name that is iconic. When we do our research about brand recognition, theres only
98.5 per cent of the people in Australia recognise the name Telstra. Im trying to figure out who
those other per cent and a half are, because, you know, when I used to come here on holiday to
Australia, I mean, Id see Telstra all over the place, and I knew who Telstra was, and I didnt
live here.
So, strong iconic name, and obviously the market share position, the economy, is a scale we have in
our business, and the balance sheet, and the cash flow that we generate in the business say that
this is an important business, it is a business that is not unhealthy, its just a business that
needs restructuring, and thats what we are going to do.
But I also like to remind ourselves, inside the company, and also in a fully disclosing way to
those of you that are shareholders, or those that might be interested in becoming shareholders,
that there are some core issues that we have to address. One is this notion that says, Our old
line of revenues. What we call PSTN, our public switch telephone network service theyve been in
decline, and again in the mid 90s I saw this in the US. In the early part of this decade I saw it
in Europe, where every company reaches this point where it just starts falling off.
We reported in the first half that our decline in these revenues was about 7.6 per cent. Thats
pretty serious. Pretty serious for a business like us. And these revenues are the most profitable
revenues that we have had in this business, and are common across all companies like Telstra
throughout the world. Which then drives what happens to income, which drives what happens to cash
flow, and all the other relevant metrics that those of us who run businesses off of fundamentals
think about all the time.
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At the same time, when I came here back in July, I saw that our costs, in terms of running the
business, were going the opposite direction of our revenues. Our revenues on PSTN were going like
this, and our costs were going up. When we reported our annual results last August, our retail
revenues were essentially flat, meaning 0 per cent growth, and our retail expenses were going up 10
per cent. Not a pretty picture.
And in the case of our wholesale business, both costs and revenues were going up about the same
percentage points in a double digit fashion. So there is some restructuring we have to do in the
business. We have to take costs out of the business, and there are smart ways for us to take costs
out of the business, and thats part of the transformation program that we have undertaken here at
Telstra.
So, as we look at the business then. Theres another rule of thumb that I like to talk about with
our people inside the business, and that is not all dollars are created equal. Right? What does
that mean? Not all dollars are created equal.
Its that, you know, there are certain revenue streams that are highly profitable, and some that
are less profitable, and so in the case of our PSTN revenues, we basically have margins that are
double of most of our other product lines in the business. So it almost says that for every dollar
we are losing on PSTN, we have to generate two replacement dollars on our other service, so that
means we have to get moving pretty hard, pretty fast, about innovating around new products, new
services and new revenues are our sources. And again, that is really part of the major focus we
have on our transformation. So we are on the move.
When I think about the business here I have not been good in coordinating here, on the slides,
but we are on the move in terms of driving a new customer experience, driving new revenue sources,
reducing complexity in the business, because as customers have dealt with us, and as Ive heard the
stories over and over again from individual customers when I first came, and all the emails and
letters I received, as well as on the street conversations with folks, and then when I heard about
some of the barbie conversations did you know that in Telstra in the past, employees were given
barbie cards, meaning when they were at the neighbourhood barbecue or friends barbecue or
relatives barbecue, and somebody came up to you and had these questions about Telstra, there were
ready-made answers that some of the employees used to have to carry around.
Now, obviously Telstra has always been a really good company but, you know, when you only perform
at 96 per cent perfection, you are not perfect, right. And that 4 per cent of the time, if you are
one of those 4 per cent, Telstra Ill be nice here -
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Sol Trujillo |
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stinks, if youve had a bad experience. So what we want to do is reduce that percentage even
further, so we can be as close as the highest performing company that we can be economically.
Again, Im thinking about our shareholders.
So we are doing many things that are going to change our customer experience, are going to change
our cost structure, and are going to help us bring new products, new services going forward. Thats
where, when I say that we are on the move, we are driving everything that we can drive in this
business, because you have to drive revenues, youve got to drive costs down, and you have to
change the regulatory SCMA in order to change the picture, and finally then you have to innovate in
this business aggressively.
Now, part of what we are doing is also in order to effectively manage our business, and to be
better than our competitors, I have a core belief and Ive done this in every company that Ive
run is that you have to understand your customers really, really well. And you cant assume that
everybody sitting at this table here has the same needs. Just because you are high network
individuals, doesnt mean that you have the same need sets as far as it relates to what your
lifestyle is like.
So what we are doing right now is weve surveyed about 22,000 Australians so far, and
we are probably going to end up researching around 70, 80, 90,000 Australians to make sure that we
understand what their needs are, and from that we are segmenting our business. We are actually
organising the front end of our business around those segments, so that when we deal with you as
part of a segment, hopefully you will feel like we are talking to you, right. Not talking to you
and 5 million other people, but talking to you, in terms of what your needs are.
And we are also structuring how we operate, again around your needs, so that we have a good
understanding if you are a web-based person that just want to interface with Telstra all through
the web, will enable you to be able to do that. But, if you like the personalised service of having
a technician come out, do all the things for you that you want to have done, well do that for you
as well.
We are going to give our customers options, and thats part of what we are going to be doing, but
it also drives the innovation part, the services, the capabilities, the products that we want to
deliver to our customers as well, and so this whole notion of market-based management, to me, is
fundamental to the transformation that we are making at Telstra as we operate the business today,
and if you want examples, take a look at American Express.
American Express is a company that came in, basically, after Visa, Mastercard and all these big
credit card companies established their market position, and they
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basically came in and said, How do we differentiate, how can we be better, and how can we
deliver better margins for those who are going to invest in our company?, and what they did is
they went out and did a lot of research, and they really understand their segments and they know
who they want to serve, and they also know who they dont want to serve in their case, as they run
their business.
Whereas if you move over into the automotive side, I had a chance to go, in the early 90s, to
visit this company called Toyota, who back in the early 90s, most people didnt know much about;
who back in the early 90s, barely made the top 10 of car manufacturers in the world. Very
shortly, within the next year or so, most are predicting they will become the number one car maker
in the world. Why, because back in the 90s, they were segmenting the market, and they were really
understanding customers needs, not just with low and cheap vehicles.
They were working then on this notion of Lexus, right this car called Lexus. And it took so much
market share back in the mid 90s when they first introduced it, and to the late 90s, it really did
damage to the Fords, to the GMs of the world. And since then theyve spread their product line,
where theyve virtually covered every segment, and they know the differential points, segment by
segment by segment.
So Im a believer in this notion of market-based management. Ive been a student of it, Ive been a
practitioner of it. And I can tell you it works every time. So when we think about it, it is always
about driving competitive advantage, but delivering competitive advantage to deliver value. Value
to the customer. And so when the customer sees the value, they are willing to pay for it; generally
if they are willing to pay for it, you can generate good margins because it is something in the
value equation mix that creates more value for the customer than what we charge, and thats
ultimately how we think about value-based price.
But theres one more dimension to it, and that is really understanding what are those things that
make life better and simple for you. Because Im going to be clear about that, and Ive been clear
about this since I had a business. I want our customers to use our services more. I want every one
of you as Telstra customers to spend more money with Telstra, not because you have to, but because
you want to. And not because you have to go to school to learn how to take advantage of all this
new technology, but because we make it easier and simpler for you.
So for those of you that might have been at the Commonwealth Games last month, you would have seen
some of the new things that we are starting to do for our customers. Now, I have a phone here that
says Samsung on it. Its a nice little thin phone, one of the latest in the market phones, which is
a cool phone; I like it, it fits nice in the pocket, doesnt bulge you know, all that sort of
thing. Its a 3G phone,
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so I can do video calls on it.
But theres other phones that can do that. Whats different? Whats different is as you can see it
here, I dont have a camera here to focus, but you can see here theres two words on the screen at
the bottom here. The two words say, Big, and pond. Now, some of you might have heard about
BigPond. Again, its a great service that we provide. Its our broadband service, but now with
BigPond you have a lot of services that go with it. Its more than just getting you access to
broadband.
It also has security and other things, but it also gives you access to sports news, weather and all
that sort of thing, but at the Commonwealth Games we were broadcasting the Games live, and its
one click, one button, one touch, simple; so that basically if you want to go to your BigPond site,
all you have to do is click one button, and in anywhere between 12-15 seconds, youll see that you
are now onto BigPond.
Then you can go into whatever it is you want to get into on the BigPond site. Why is this
important? Its important because we know that all of you, as customers, all of us Im a big
broadband user. I want things to be easy. Now, I can teach you, if you become a Telstra wireless
customer in five seconds or less, how to become a BigPond user on your mobile platform. Thats how
simple it can be.
And I want our stores if you go into a store, to be able to have you set up when you walk out of
that store with whatever capabilities you want set up at home, on your mobile device, and I want it
to be seamless, ultimately so that this device can become the remote control for your life.
So when you get in the car, and you want these same capabilities in your car, and you want them
activated, all through Telstra, or in your home, when you are in your garage, going in your study,
or going into your kitchen, or going into the family room, you can make it all simply work
seamlessly, and thats part of what we are building for you.
This is the first stage, because we are going to integrate Telstra as one company, and you can get
one click to Sensis, whether it be wireless, or any other feature or service that you are looking
for, because we are going to make it simple for all of you.
So, when you see us talk about our business here, you can see here that we are going to integrate
services. Why? Because the vast majority of our customers have said,
This is getting too complex, right; broadband, wireless, this kind of stuff that Sensis is now doing search, transactions,
all that. Can you make it simple?, and
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theres one company in Australia one company in Australia that can do that, and that is
Telstra.
So we are working on it, and this graphic here indicates to you how we are looking to integrate
these things so that again it is simple for you, and it will be personalised to you. So that,
again, not everybody has the same requirements.
I use another device personally, and I dont mean to bore you with a lot of handsets and toys my
wife tells me that I have too many toys but you can see here that I use a different device. This
is for my business use, and on this here, if I want to check my calendar, its one button, and Im
into my calendar, right.
We can see all the things and I can go on months, I can go back days, I can do whatever. Lets
say now I want to check my email. Its that simple. Im now into my email. One click, one button,
simplicity.
Down here on the bottom, if I go in and check an email, you can see down here on the bottom, I can
hit delete, forward, send, whatever. Its simple. And that is the key, because if you like
simple, generally that means you are going to use it more, and if you use it more, then I get to
charge you more.
Thats kind of the story behind what we are doing in our transformation at Telstra, because it is
about business. Its not about politics, its not about regulation, its not about Government. Its
not about a lot of things. It really is about customers.
So I like to talk inside the company when I meet with their employees, I like to say to everybody,
Look, we are about our customers. We are going to drive this company based upon what our
customers want, and everything we are going to do is going to make money for our shareholders. Our
job is to create value for our shareholders, so when you get up in the morning, instead of looking
out the window, and looking to Canberra to see what we should do today, you forget that. And you
look out the window and you see that customer, that building, that city, whatever it might be, but
its about the market. Its about how we are going to drive our business now, going forward, based
upon the market.
Now, I do need to talk, just before I close here, about this notion of regulation, because that is
the most often asked question in terms of well, you know, whats happening here, because it does
affect value. Over the last few years, since probably the regulatory structure was put in place,
theres been a lot of what I call value destruction thats occurred by regulators that want to see
many competitors succeed.
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So, as a principle, thats good, and I dont dispute that. I like competition, because I think
competition makes you better, but I dont like to see competitors subsidised and, most importantly
for those of you who are shareholders, I dont want you subsidising their shareholders, wherever
they come from. In many cases our primary competitors are Singaporean companies. I dont like the
notion of Australians being subsidising Singaporean investors. I dont know about you, but when I
invest, I want to get the returns back to myself.
So we are fighting these principles about how we should think about cost recovery. Any time we do
anything, it should be priced at cost or above. When you hear about issues like
unbundled-local-loops it costs us a lot of money to dig up streets, to put in conduit, then to
put the cable or the fibre and ultimately turn up service to you, whether it be at your business,
in a downtown area, or it be in your home, in a suburban area, or for those of you that have second
and third homes in other places, all of that costs a lot of money.
We have about $30 billion of invested capital in our plant that is still on the books. A lot of
people say, Well, all the stuff you put in has already depreciated. If it was already depreciated
it wouldnt be on the books, right. So we have about $30 billion of capital that we want to
recover. Its your money, those of you that have invested, and we are holding true to that
principle of protecting your interest.
In terms of new investments weve been having an argument that says if we put in fibre to the
node, and we make it available to our competitors, we want to price it at levels that allow us to
earn competitive returns on it, and not below cost because again, its not right for our
shareholders, for us, to do that, and then turn around and give it away to other
shareholders, so they dont risk their capital.
Finally, this notion of operational separation we think we do all the things that are necessary
to enforce the access that people should get to our copper network. No arguments there. We want to
do that.
So thats the regulation story, trying to make it simple, to say its all about the shareholder,
and its all about our shareholders getting fair play and fair gain for the risks that they take.
So, maybe in closing, just to summarise here, after transformation, the new Telstra will have a new
high speed national wireless network; will provide more of these integrated products and services.
We are going to provide a new customer experience, and just remember what I call this power of one
one click, one screen, one touch, one call, one step, one visit in terms of how we operate our
business.
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Well have the biggest networks, in terms of mobile and our IP services and our broadband
services. Well have simpler pricing. You see that this past week we are introducing some new
pricing packages for those of you that like doing a lot of calling. We are going to make it simpler
and easier for you to know what our prices, and what it means to you in terms of minutes and
potential use. We are going to take advantage of our scale position, and we are going to keep on
working to drive more economic advantage off of our scale position.
And I think that if you watch what we just did also with our CSL business in Hong Kong, we just did
a cashless transaction, actually cashless to us. We received cash in order to continue to expand
our position in Hong Kong. Its a very important market if you think about China, and taking
advantage of what might be happening there, over the coming years.
Theres a company called China Mobile, that now has 250 million, quickly moving to 300 million,
mobile subscribers in China. Think about that. 300 million subscribers and theyve only penetrated
a small portion of that market.
Now, think about broadbands coming, think about other services in Asia, China in particular, but
you have India and some other markets that are there. Let me not confuse anyone here. Australia is
our first priority, but I have to think out three to five years in terms of what are other
opportunities that we have to create value, and to grow, and I am not a big M&A guy, I am not
talking about doing a lot of big transaction kind of things, its about doing smart investments and
joint ventures in other things.
Strong balance sheet Im going to keep that strong. Best cost position, and obviously becoming
the most innovative company that you will see here in Australia, but also
competitive with anywhere in the world, and the only question that I have, I am confident about our
ability to do all those things because Ive done them before, Ive been involved in doing them in
the US, in Europe, in other parts of the world, and the only question mark we still have hanging is
this regulatory issue.
Im just going to put up the last chart, and this last chart is the stakes in the ground that we
communicated back in November when we announced our strategic direction for Telstra. The growth
objectives that we have on revenue; our new product revenues how we think about those; our cost
structure EBITDA growth, EBITDA margins, in terms of
sustaining and holding margins; workforce
obviously in order to take costs out we are going to have to reduce the number of people we have in
the businesses, the full-time equivalent.
We said in the first three years well take out somewhere between 6,000 and 8,000,
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and in the five years well probably take somewhere between 10 and 12,000 people out of the
business; CAPEX I think when we are done with this, we are going to see a different kind of
CAPEX, revenues to CAPEX kind of relationship that will grow into the high single digits; and free
cash flow youll see significant free cash flow being generated out of this business and
obviously the other question that often gets asked is the dividend, what about the dividend?
Well, clearly the board has set a policy in terms of dividends that weve communicated, and the
only overhang that we have relative to dividend and sustaining dividends going forward, is that
regulatory set of instructions. Obviously if we can get a positive outcome there, dividend policy
should not be any different to what we think about today.
But obviously its important for us to understand, as John Stanhope, our CFOs communicated with
some of his prior comments, is that we always have to consider, or reconsider investment levels and
any other policy decision based upon some of these regulatory outcomes, so as a board we are clear
on that, weve communicated that, and we will continue to communicate that as we go forward.
So that is the Telstra story. It may not be quite what youve read in the newspapers, and I know
you probably havent read much since we are not in the news that often. But these are the facts, as
they would say. With that I will stop and open it up for a few questions.
(Applause)
TERRY: You might also be interested to know that Sol flew in from America this morning, especially
after he said, Look, I cant get there for the early sessions, but Ill be back in time for
lunch, so hes made the special effort to speak to us today, having arrived this morning,
literally. That was a pretty impressive sort of effort.
So well try and finish pretty close to half past two, but do people have any questions?
UNIDENTIFIED SPEAKER: Sol, would you mind going back to the part on regulation, because there were
three things.
MR TRUJILLO: Can we go back to the regulation slide?
UNIDENTIFIED SPEAKER: I didnt get that one.
MR TRUJILLO: Can we go back on the slides? I cant go back on what I have
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there. They want to make sure I finish on time, so I can only go forward. Do we have it up?
Regulation. Okay.
Let me just tick through it really quickly. The Government here in Australia has made a policy
decision that they would like to see common pricing, average pricing, at retail; meaning if you are
in downtown Sydney, or you are out in the bush, you pay the same amount. Okay?
Now, what we are arguing is, on the structure issue, is that okay, if you do that, then at
wholesale, you should do the same thing, in terms of averaging.
The second bullet says $30 average undertaking. Thats what our cost is. Thats what we are
saying on average our cost is to provide dial tone essentially, on average, throughout Australia.
And there are some, ACCC, that has submitted studies, and they came out with a study last June or
July, where they said that they thought in the CBDs, our costs are probably $7 or $8, and in what
they call band 2, which is kind of like the suburbs, it might be $13, and on so forth, and then
out in the bush it might be $140.
Now, my reaction to that sort of thing is, Im a business person, and I think most of you, as
investors, are good business-thinking people. If it was that cheap to be able to do those things,
you would see a lot of people doing it, right? Because we charge a lot more than $8, so if the
cost is $8, you would see a lot of competitors out there building it, given what we charge, lets
say, at $25 or $30.
The answer is nobody is because those are not the real costs, and I can tell you those are not the
real costs, and thats what we are arguing.
Did I answer your question? Thank you.
TERRY: Perhaps one last question.
MR TRUJILLO: All right, I dont see any more questions. As Terry said, I really do appreciate your
inviting me to be here. I love talking about Telstra. I think Telstra is a
great company, and its going to do great things as long as we are allowed to do them, as the
market would dictate.
TERRY: Thank you, very much, Sol. Im just sorry we dont have a T3 prospectus, you could sell a
few shares as you go out the door.
oo00oo
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Media Release
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Wholesale price increase fair and justified
Telstra said today it is confident the price it charges wholesale customers for a basic line
product called Home Access is reasonable, and that an increase last year was necessary to help
maintain the countrys national copper access network.
Telstra Group Manager of Regulatory Affairs, Dr Tony Warren, said the increase in the Home Access
wholesale product by $3.10 per month to $27.60 per month (excluding GST) was fair given the way
competitors use it as just one component of a larger bundle of services they offer end-user
customers. Over the bundle there is sufficient margin.
The comparable retail plan to Home Access is HomeLine Part which Telstra increased by $5 per
month to $31.95 per month (GST included) shortly before it increased wholesale Home Access by
$3.10.
Home Access is just one component of what the wholesale operator would provide the end user in
terms of a total product offering which would also include long distance, international and
fixed-to-mobile calls. It may also be part of a total bundle including broadband.
When a wholesale customer uses a basic access service like Home Access to provide its own
value-added services, the access charge is the only guaranteed income Telstra recovers, Dr Warren
said.
It is only fair to Telstras other customers and its shareholders that wholesale customers make an
appropriate contribution to the maintenance of the network given they are making profits from
providing services on the Telstra network.
The ACCC contends there are competition issues in the Home Access charge because access in itself
is not profitable.
Telstra believes that the ACCCs intervention in this very competitive market is
unnecessary and only serves to create uncertainty for wholesale customers and their pricing.
The ACCCs decision to issue a Competition Notice is not a finding of guilt, nor does it imply the
matter will automatically be adjudicated by a court. However, Telstra is prepared to strongly
defend its position, Dr Warren said.
Telstra Media Contact:
Rod Bruem
(02) 9206 0092
Telstras
national media inquiry line is 1300 769 780. and the Telstra Corporate Communications Centre is located at
http://www.telstra.com.au/abouttelstra/media/index.cfm
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Media Release
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MILLION MILESTONE FOR BIGPOND ADSL
BigPond today announced its ADSL broadband customer base had doubled in less than 12 months, with
the connection of its 1,000,000th ADSL service.
BigPond Group Managing Director, Mr Justin Milne, said today demand for BigPond Broadband services
was so strong because more Australians were recognizing, and using, the benefits of high speed
online connections such as education, entertainment, communicating to friends and family or making
banking and bill payments easier.
The first 500,000 ADSL services took almost six years to achieve, and weve signed up the
subsequent 500,000 in less than 12 months, he said.
With broadband growth in Australia in the top six for OECD countries, and broadband penetration
above the OECD average, BigPond looks forward to continued strong growth, Mr Milne said.
Our commitment to broadband in Australia, our innovative products and services and our
industry-leading customer service all add up to a superior product that is encouraging thousands
of Australians to join BigPond every day, he said.
In the past 12 months, while doubling its ADSL customer base, BigPond has launched:
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Australias first legal movies downloads service |
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BigPond Wireless Broadband, with Australias greatest coverage |
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Cable Extreme, offering up to 17Mbps speeds |
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BigBlogs |
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Live online coverage of the Commonwealth Games |
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Live and on demand webcasts of the Sydney Symphony and Sydney Writers Festival |
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Expanded websites for AFL.com.au; NRL.com, V8 Supercars and BigPond
Music |
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BigPond Kids |
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GameNow |
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BigPond content on Telstra 3G Mobiles |
BigPond also has won two national awards for Best Broadband provider and its Customer Contact
centres have been independent reviewed as industry-leaders.
Background
Telstra launched ADSL services in Australia in August 2000 and has since enabled almost 2200
exchanges nationwide. ADSL broadband currently is available to 88% of Australians nationally.
Telstra media contact
Craig Middleton
0400 931 772
Telstras National Media Inquiry line is 1300 769 780 and the Telstra Corporate Communications
Centre is located at www.telstra.com.au/abouttelstra/media
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Media Release
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Telstra seeks Government clarification on 3G regulation
In a report in todays Australian Financial Review, the Communications Minister, Helen Coonan,
said there may be regulation of Telstras new 3GSM 850 network (such as third-party access or
license conditions). The 3G network is currently under construction.
This would mean that investments in major new telecommunications technologies and services may be
regulated identically to the old copper network; Telstras legacy infrastructure.
It would also mean the application, for the first time, of intrusive and value-destroying
regulation on a single company in the already highly competitive market of mobile telephony
making Australia the first developed nation in the world to impose access regulations in the mobile
space.
These kinds of regulations consistently undervalue Telstras network investments, forcing Telstras
shareholders to subsidise the operations of the companys foreign and domestic competitors.
To protect its shareholders and their investments, Telstra is seeking urgent clarification from the
Government that its new 3G network will not be regulated.
Telstra Media Contact:
Liz Jurman
Tel: 02
9298 4296
Telstras national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media
For news, views and discussion on telecommunications in Australia see
www.nowwearetalking.com.au
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Telstra Corporation Limited |
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ABN 33 051 775 556 |
Telstra Corporation Limited Macquarie Investor Conference Sydney May 2006 |
John Stanhope Chief
Financial Officer |
These presentations include certain forward-looking statements
that are subject to various risks and uncertainties. Actual
results, performance or achievements could be significantly
different from those expressed in, or implied by, these forward-
looking statements. Such forward-looking statements are not
guarantees of future performance and involve known and unknown
risks, uncertainties and other factors, many of which are beyond
the control of Telstra, which may cause actual results to differ
materially from those expressed in the statements contained in
these presentations. For example, the factors that are likely to
affect the results of Telstra include general economic conditions
in Australia; exchange rates; competition in the markets in which
Telstra will operate; the inherent regulatory risks in the
businesses of Telstra; the substantial technological changes
taking place in the telecommunications industry; and the
continuing growth in the data, internet, mobile and other
telecommunications markets where Telstra will operate. A number of
these factors are described in Telstras Annual Report and Form
20-F. |
All forward-looking figures in this presentation are unaudited
and based on AGAAP. Certain figures may be subject to rounding
differences. All market share information in this presentation is
based on management estimates based on internally available
information unless otherwise indicated. |
1
National 850 3G network
IT transformation and cost take out
How are we going to change the economics of the business?
Culture at Telstra
Regulatory environment |
Transformation update 3G 850 network |
Telstra and Cingular first to roll out 850
Other carriers considering 850 networks, some of these involve
migrating from CDMA to 3GSM
Why the 850 network? |
Greater breadth of coverage |
· Necessary for Australias landscape |
· Less base stations required, less cost |
Superior in-building coverage
Single national network
Economies of scale through rationalisation of platforms
Range of handsets and PC Cards are being developed by vendors |
2
Transformation update 3G 850 network |
3GSM850 Handsets & PDAs will be a mixture of : |
triple or quad band 2G (900,1800,1900 2G or
850,900,1800,1900 2G) single and dual band 3G (850 3G
or 850,1900 3G or 850,2100 3G) |
3GSM850 PC Cards & modems will be : |
triple and quad band 2G (900,1800,1900 2G or
850,900,1800,1900 2G) Odual and triple band 3G
(850,2100 3G) or (850,1900,2100 3G) |
Through 2007, handsets will trend to be quad band 2G and dual and triple band 3G
Varied combinations of band support have been a normal part of
the GSM landscape globally for nearly a decade. |
Spectrum Drivers for devices: |
Handsets
850 900 1800 1900 2100 |
Telstra 3G Telstra and Telstra and International Telstra 3G |
data cards network international international 2G roaming Network and |
2G roaming 2G roaming International |
Transformation update IT rationalisation |
New BSS and OSS systems will deliver dramatic
simplification and new capabilities cost effectively |
Operational Support Systems (CRM, Billing & Care) |
Transformation timeline over 3-5 years (but with delivery of
tangible benefits throughout, starting in 2006)
Systems will be integrated and customer-centric
(vs. todays siloed, product- or network-based systems)
A few proven world class partners (not individual vendor choices by sub-area)
Commercial off-the-shelf packages (not custom-built) |
Incremental change is not enough we will transform our IT capability |
3
We will Dramatically Simplify our IT Systems Environment |
(number of BSS and OSS systems remaining) |
Reduce Reduce 40% by ~75% by
~80% |
Telstras competitive advantage will deliver value |
Differentiation Customer knowledge |
leverage exclusive BigPond and greater understanding of customer Sensis content to
deliver a richer needs through MBM customer experience |
SIMPLICITY customers are willing to pay for |
ability to access content, services national coverage over both fixed and applications across
multiple and high speed national 3G devices, eg mobile, laptop, PC, wireless networks home phone |
4
Evolution of products, networks and systems necessitates a new
analytical framework |
(Traditional and New onto NGN networks) |
ADSL Internet <1.5 Mbps IPTV / HDTV (mobile or fixed)*
Foxtel Reinventing
Video calling (GSM 2100 ?3GSM 850) (Broadband
Mobile Data (1xRTT) Mobile/Wireless broadband
Online search and directories (EVDO HSDPA) |
New NB Applications and Services Ultra High-Speed Internet
>12 Mbps* Opportunity Products) |
Content
Software solutions
Products
PSTN (Basic, Local, LD) Voice over Broadband (VOBB)*
Reengineering
Dialup Internet Access Mobile 3G voice calls
Fixed to mobile calling High-Speed Internet >1.5 Mbps*
Traditional Mobile voice Integrated Fixed-Mobile over(Product |
Paper directories Broadband) Opportunity |
Traditional Next Generation |
* Subject to a reasonable regulatory outcome Networks |
Detailed driver analysis will enable understanding of the cost of
product delivery |
Mobile
Cost of sales transformation Simplify supply chain
NGN Implement single core network
Network
Maintenance Mobile
transformation Eliminate duplicated OPEX
NGN Pre-provisioning
Activation
BSS Customer Self Service
NGN Reduced labour expense |
OSS Proactive customer problem
management and resolution |
In aggregate these drivers will lead
to a reduction in end-to-end product
costs |
5
OFCF increases via product / network reinvention & re-engineering |
New products over next
generation networks Reinvention |
Traditional
products over NGN |
Traditional products
over traditional networks
(products over narrowband) |
Our people are critical to success. We are developing a
new, winning culture. |
Identified a need to change the organisational culture to align all
staff to the new strategic direction and deliver on the vision. |
Top 300 managers forum
CEO and Senior Management team roadshows to staff |
6 new cultural priorities: |
Customer.First
People.Power
Compete.Win
Done.Now
Anything.Possible
We get it. Together |
$200 million staff training program
Five-year $67 million agreement with Accenture for new training
program to field services staff. |
Align incentives to achievement of strategic objectives |
6
Our principles for regulation |
Regulate under existing rules |
Next generation networks new rules required which: |
Compensate an investor for the risks and investment required and
allow an appropriate return on capital
Regulated access given to competitors only on strictly commercial
terms |
Competitive market 4 carriers, all with 3G networks
Competition has driven innovation and investment in mobiles
Guarantees required that legacy regulation will not be
applied |
Revenue growth 2.0% to 2.5% p.a. (FY10 vs. FY05)
New product revenue 20-30% of new revenue growth by FY08 |
Cost FY10 will be the same level as of Jan 1st 2006** |
EBITDA ($) 3-5% p.a. growth through FY10 |
EBITDA margin 50% 52% by FY10 |
Workforce Down 6,000 8,000 over 3 years |
Down 10,000 12,000 over 5 years |
CAPEX Falls to 12% of revenue in 2010 after $2.5B - |
$3.5B bubble in FY06-FY08 |
Free cash flow $6B $7B by 2010 |
Dividend Intention to pay 28 cps to FY08*** |
*Subject to a reasonable regulatory outcome |
***Subject to normal Board considerations Page 14 |
7
TELSTRA JOHN STANHOPE
3rd MAY 2006
TIM SMART: Good morning, ladies and gentlemen, we might just make a start, if thats okay. My name
is Tim Smart, Im head of the Australian Telecoms Team here at Macquarie. Its with great pleasure
that weve got Telstra here, and specifically John Stanhope, the Chief Financial Officer and Group
Managing Director for Finance Administration, to present to us here today. Its certainly a very
interesting and defining period in Telstras history at the moment.
In terms of John, as I mentioned, hes the Chief Financial Officer, hes responsible for finance,
treasury, risk management, and assurance, productivity, corporate services and billing. Hes been
in that role since 1 October 2003 and, of course, has had a long and distinguished career at
Telstra. He was involved in T1 and T2, and many of the previous cost reduction programs, gross
strategies, debt raisings, capital management initiatives and organisational restructures.
So, we are very pleased to have John here to speak today, so please welcome John Stanhope.
JOHN STANHOPE: Thanks very much, Tim, and it is a pleasure to be here today and, you know, its
always an interesting situation where you speak at various investor conferences and you think
about, Well, what is there new that I can say? Its not easy to come up with something other
than to say, of course, that the activities around Telstra at the moment are at a fever pitch. The
activities with the regulator is at fever pitch, and thats an exciting time, I guess. Hopefully,
shortly, to reach the crescendo and some reasonable decisions.
So thanks again, and good morning to you all. I refer to the usual disclaimer that is compulsory,
of course.
Today Im going to focus on our strategy and the direction of the business, but I am going to cover
some of the common themes that I get regularly asked about as I go around and talk to the investors
on a one-on-one basis and, of course, questions from Tim Smart and others.
Im going to talk about the national 853G network, because theres a few questions around that. Im
going to talk about our IT transformation and cost take out because recently I made some comments
about that, and I want to sort of reaffirm some things I said, and talk about it.
We get questions around how we are going to build the economies of the business, given whats
happening today so how are we going to change the economics of the business; the culture at
Telstra one of the questions often asked is, Well, you have a fairly major transformation
program that you are undertaking. Its faster than anybody else has ever done, so what about the
culture at Telstra, how is that changing?; and Ill touch a little bit on the regulatory
environment. Theres not much I can say, but at least Ill talk a little bit about it. So, Ill
address each of those issues in turn.
As you know, we are building a single national 3G network on the 850 spectrum. Currently in the
world only Telstra and Singular in the United States are using the 850 spectrum for 3G. Singular is
lunching in June this year.
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Carriers around the world are migrating from CDMA to GSM, and we know many carriers are
considering migrating from CDMA to 3GSM. So why 850? The lower the spectrum, of course, the greater
the area that can be covered. That means in both terms of area coverage, but also in building
coverage.
So, for a landscape like Australia, we need a network that is going to cover a large
distance, without increasing the cost associated with roll out and maintenance. With the coverage
of 850, we have been able to utilise existing base stations so, as you would understand, we have
CDMA base stations throughout, and sites, not just base stations, but sites on buildings and so on
throughout the country.
To service at least the same population theres been a bit of noise lately about, you know,
making sure Telstra does it, and so on, and we are trying to get across the point to people that
this is a superior network that we will finish up with. So by building the 850 network, we will
have Australias only true national 3G mobile network, and this will mean all Australians in
coverage areas will have access to our superior coverage, and content, and what I mean by that is
after the launch of this network shortly after the launch therell be high speed data
availability and, therefore, access to more content than is available today.
850 also provides superior in-building coverage, which, of course, is critical to customers. Many
of us get annoyed when we go into certain buildings, we dont have, or it drops out, and we dont
have the coverage.
With a truly national network, we can rationalise our platforms to bring greater economies of scale
and reduce costs over time. So its not only about providing better facility to customers, its
also about reducing our cost base by also reducing one of the platforms, CDMA platform, which will
reduce costs over time.
We are currently in the progress of acquiring a range of handsets and PC cards from vendors. We are
often questioned about the availability of handsets, but I guess Ive seen at least, personally
seen, touched, held, used, at least six different 850 handsets.
So let me continue on with 3G. We are seeing that good range of handsets already being developed
by vendors. The handsets well be able to offer will cover a range of bands, both for use in
Australia and for roaming overseas. Initially we will be launching handsets that cover 3G 850 and a
range of 250 bands, which allow global roaming based on 2G.
We are also acquiring handsets and devices which have tri-band 3G, which will be able to be used
almost anywhere in the world. Just to be clear, even though a handset may only have dual band 3G
capability, it will still be able to roam back to 2G if 3G coverage is not available.
So while a customer may not be able to use all the data functionality of video calling, they can
still use the 2G network for voice and some data. We are really at 2.5G, I guess. 3G its not
just about handsets, its also about mobile broadband via either the PC cards or PCs having their
3G antennas, the likes of which Dell and Lenovo are producing overseas.
So well have a number of cards as well as the handsets available at launch. So thats hopefully
dispelling some of the myths about 3G 850 roll out and handsets availability. The transformation,
and IT in particular I did say a little while back that the transformation in terms of the
network roll out is relatively easy compared to this tough bit, which is the IT transformation.
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So, it is a major component of our transformation. It is about simplification. Its the IT or
systems simplification. Our IT infrastructure is currently extraordinarily complex. Theres no
doubt about that. That complexity causes extra work at the front of house, back of house, right
throughout the company.
So we are focussing on implementation of fundamentally new capabilities in
both the business support system and operational support system areas, which are needed to help us
manage the next generation network that is the OSS to help us manage the next generation
network. Dramatic simplifications of platform, so OSS platforms and products and price plans and
so on, pave the way for the implementation of these new capabilities.
Make no mistake, we realise and Im sure you do that it is a huge task that confronts us, but
wholesale change is needed. You know, we are a company thats been around for a long time, and the
complexity has built up over a long time. So towards the end of this year there will be a
moratorium. So we are doing about it differently. That is, no work on old systems will occur after
November, and we havent quite picked the date in November yet, but we will shortly, and well
start to build the new systems, and well take seven or eight months where that will be the focus
of the company, and the old systems we wont play around with.
Now, probably, therell perhaps be one exception. You dont want to be vulnerable in the market if
somebody comes forward with some pretty innovative pricing, so we would respond to any possibility
of being at a market disadvantage, but that would be the only exception, and we would expect those
to be few.
So what weve tried to do is build new systems and within the organisation while making changes to
the old systems in the past, we are not going to do that because thats resulted in a distraction
from the main game and, in fact, weve had a couple of cracks at this and weve failed because we
havent stopped work on the old systems. So thats our intention. Of course, its not without
risks, but the different way we go about it gives us a far higher probability of success.
You can see from that slide, the dramatic change that we are going to make. We are going to deliver
this next transformation over the next three to five years. Our key business support systems, CRM
billing and customer care, will transform over the next three years. Our operating support systems
will follow, our network transformation, as we deploy over the same three to five year time frame,
the next generation network.
The earlier focus is on improving the quality of our customer information. You know, we have far
too many handoffs at the front of house because we dont know about the customer in terms of a CRM,
so that is essential to be able to deliver better service to the customer. So its about focussing
on quality of the customer information through our CRM capabilities. Its about the system support
for market-based management and, of course, its very much about front of house simplification.
I think if you recall our November Strategy Day, the 6,000-8,000 over three years, and 10,000 to
12,000 staff reduction over five years, is very much dependent on simplifying on the front of
house. Today our billing and customer care is very much product focused. Tomorrow it will be about
our customers, customers segmentation.
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We have an aggressive timetable, no doubt about that. So how we are going to do it. Well, one,
we are going to have a few world-class partners, and we have; and, two, we are aiming to avoid
custom-builds, so we are going through this process now of what we call fit-gap, which is about,
you know, we buy this thing off the shelf, other people have done the sort of things that we want
to do around the world before, so lets just plug it in and so we are having this heres what
it does, is there a gap to what we do today, and does it matter if theres something that weve got
today that we dont get out of just putting it in an unchanged way, so no customisation, or as
little as possible.
By the way, thats the way I put SAP into the company. Thats the only way to get these sort of
things done. So we have a defined plan, which will radically simplify the systems environment. We
are going to remove some 80 per cent, as you can see there, of our systems, most of them over the
next three years. And there will be multiple benefits. Well have less complexity, of course, less
outages, of course, a lower cost and simplified processes for the front of house employees. And,
for example, well move from six tickets of work or work ticket systems for our few of force, down
to one.
Okay, so the new economic Telstras competitive advantage, so what do we mean when we talk about
that stuff? We are going to deliver a valuer proposition, we believe, to customers, based on the
competitive advantage that we have as a full service operator, and we believe Australias leading
telecommunications company. Market based management really is the starting point of that value
proposition.
Just to remind us, or remind you all, the goal of market based management is to know the customers
like never before, and deliver integrated services tailored for their needs, so not looking at it
sort of like product by product, like wireless and fixed and data, and so on, but looking at it
from a segmented slice.
Our strategic marketing initiatives are the key plank in changing Telstra. We are already its
very early days, but we are already seeing the impact of just understanding the segment better than
we have before. And a segmentation weve done. I mean, its not sort of some marketer dreaming up
the segmentation, it is informed by market research, and market research, I guess, can go back a
fair way in the company. We used to have a good market research group and over time its sort of
dissipated, but now we have a very strong market research activity back in the company.
So they are the key planks, or it is the key plank to a truly customer-driven organisation; so we
are putting the customer at the centre of everything we do, and this will be reflected through what
we believe will be improved market shares in the various segments.
You know, we found out very specifically, like west of Brisbane metropolitan area, what our market
share is per segment. We didnt know that before, so we can be very, very targeted. And why is it
so,
which is pretty important. I mean, not just finding out the data, but why is it so. So we think we
can improve our overall market share by being very targeted in areas where our market share is low
in the various segments.
We think market base management and value pricing will also result in higher uppers and reduce our
opportunity. There will be an emphasis on, and you would expect a CFO to say this, profit and loss
measurement at the customer segment level. Weve restructured the consumer division around those
segments, seven segments, and have almost completed the task of appointing all the segments leads,
some of which have been recruited from outside the
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company because we didnt believe we had the skills inside the company, and they will be
directly accountable for profit and loss segment profit and loss performance.
The next plank of our value proposition will be our differentiated content. We are leveraging the
exclusive content of BigPond, Australias leading ISP, and Sensis, or information services search
and transaction business, to provide a richer customer experience, so far as content is concerned.
And, of course, as bandwidth increases, both in terms of fixed broadband and wireless broadband,
that content will increase.
So not only do we have the differentiation of content, but we can provide that content over
multiple devices to actually deliver that truly integrated customer experience, and I was asked
earlier this morning, Obviously that leads to integrated pricing packages and so on. I guess
that isnt something particularly new. There are some integrated services out there today at sites
here and now, but therell be more in the future.
I mean, they are available to our BigPond broadband customers now, and within our metro 3G coverage
area. When, of course, we have the completion of our national high speed 3G mobile network, those
services will be available nationally.
We have already successfully moved Sensis from being a pure print business 10 years ago, to being a
market leader in online local search. We are taking that integration one step further. Its about
not only enabling you to find what business youd like to buy from, or in the case of Trading
Post, enabling you to find a product that you might be looking for, but we are taking it one step
further, which is enabling you to actually do the transaction. We have already started this in our
Trading Post business, as we have reacted to some competition with the print media with respect
to their classified advertising strategies.
The value propositions are attractive to customers, because it delivers to them what they want,
when they want it and, above all, does it in a simple way, and this simplicity, always simplicity
for customers, is critical, but this simplicity continues to be a critical element because you
shouldnt have to be a technology expert to be able to do these things, and customers simply wont
use it if its going take them 20 minutes to figure out how, or 15 clicks and so on.
So our vision is One click, one button, one touch, one screen, one-step simplicity is where we
are driving to, and thats behind everything we are doing in terms of building the systems,
building the platforms, building the integrated products and services.
This simplicity, matched with our ability to integrate, differentiate, and know our customer better
than anyone else, we believe will allow us to provide real value to the customers, and value they
are willing to pay for. We are trying to lead the industry out of discounting and actually move
towards value pricing.
The result will be a change in the current pricing dynamics. We believe from
the commoditisation of access to a model of value-based pricing. Now, I am not suggesting that, you
know, voice, for
example, is going to all of a sudden be value price, but its the value on top of voice that Im
talking about.
You may have already seen that we have launched, on a low scale, some subscription-based pricing
plans aimed at our higher-value customers. In the
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coming months and the take-up is quite strong youll see further evidence of how we are
changing the economic dynamics of this market and the industry, and repositioning the value
proposition to customers.
Customer value, of course, is why we are doing this, in turn drives shareholder value, which is all
about improving our bottom line. So let me talk a little bit about the new economic model. This is
the first time, I guess, we have shown this slide, so I just want to give you some insight into our
thinking about the economics going forward
So this is about the new economic dynamics. Its a
question I often get asked, How are you going to achieve the aggressive financial targets that we
set ourselves? I understand theres a degree of scepticism on what can actually be achieved, but
we have done a lot of work on this new economic framework and believe we can succeed at delivering
it.
I wont go into too much detail here, but let me just give you a brief outline of the concept we
are working to, and this is a concept slide here. We are developing quite significant models below
this.
The evolution of processes, networks and systems is driving the need for a new analytical
framework. The matrix here shows you the split between traditional and next generation products and
networks. For the past 30 years, probably longer than that, the telecom industry has focused on
developing products over traditional networks.
Innovations over the years have been driven by exploiting the capabilities of the existing
traditional networks. Now a new-type of platform-based innovation is taking place. New platforms
enable us to re-engineer the existing product set and enable a new sometimes well, even yet to be
invented product set. Our strategy is precisely about exploiting the capabilities offered by the
new network platforms, and about how we move from traditional networks and products to next
generation networks and products.
So the transition, if you like, in terms of that slide towards the right-hand side of that matrix.
The model illustrates how profit drivers are likely to shift over time. Changing revenue mix will
reduce margins in the short term, and we are seeing that. And all you guys that analyse Telstra
know that. So there is a changing revenue mix happening in the short term, as our traditional
high-market products are in decline, while currently lower margin products grow. Hey, a little bit
about the product life cycle there that we all learnt in marketing 101, I guess.
However, sufficiency gains from the transformation program also go to improved margins,
particularly on a fast-growing new network portfolio. The cost of delivering products over on this
right-hand side is far less than they are today on the traditional side. So I just wanted to get
across in a little more, not a lot of detail, but a little more conceptional detail for you why we
have confidence in our financials going forward, that we talked about on 15 November, Strategy
Day.
Look, the changing product set and evolving network and systems will affect the cost of business
processes. Detailed driver analysis, which we
are doing, will enable us to reduce the end-to-end product costs, and this is part of the economic
model again, with increased sufficiencies in processes, systems and networks. We will manage
down-costs in each part of the delivery product cycle.
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So weve got our product group close to our network group, and there is a lot of work going
into the cost reduction in the product delivery cycle. So we are going to reduce the total
operating expenses and improve the margins by changing the cost structure by product by product of
the total business, in the delivery of new products and services.
So let me move on to operating free cash flow growth. Through this transformation, our expectation
is that operating free cash flow can return to growth, and over, you would understand, this fiscal,
and the next fiscal, there is high use of cash in terms of capital expenditure to do this
transformation. CAP EX will be reduced after that initial spike. Thats occurring during the
transformation program.
As we previously flagged, we aim to have CAP EX at around 12 per cent of sales by 2010. Thats
when well be mostly done with this major transformation. Then, of course, the CAP EX requirements
ought to be quite low.
As you can see from the slide, its only and it is only an illustrative slide so dont get your
calculators out here, but with our traditional products over traditional networks alone, we could
witness a decline in free cash flow position, so through the transformation, the combination of
cost reduction that I just talked about, and incremental revenue from new products over the next
generation networks, we can return to free cash flow growth.
Let me just touch on the culture, because it is a question that I get asked a lot. So as you can
see, we are working on our network, we are working on our systems, we are working on our economic
model. We are working on the customer experience, and customer value. But you can have a great
product, you can have a great technology, you can have great processes, but in the end its the
people that bring it together and make it happen for the customer.
So this is why we need to change
the culture in the organisation. Culture is a funny word. I guess it means many things to many
people. I guess what Im talking about here is behaviours. Behaviour of people when they talk to a
customer. It is a very critical element. Its really important to look at our people and look at
how we work together, so working together is also a behavioural thing that we need to occur, how we
get things done together.
Andrea Grant, who is our newly appointed HR head, who came to us from
General Motors, together with the senior leadership team, took a look at the kind of cultural or
behavioural I wont use the word culture, I dont like it behavioural transformation that we
need for the business going forward. And, hey, weve got some work to do. So we are now going
through the process of changing the behaviours in the company.
Back in early March, 300 of the top managers in Telstra got together for two days to discuss the
vision mission and strategic direction of the company. Our vision is to do for customers what no
one else has done, create a world of one click, one button, one screen, one step solutions
that are simple, easy, and valued by individuals, businesses and Government.
Our mission is to know our customers and meet their needs better than anyone else. That vision, and
that mission, is now being cascaded through the organisation via staff road shows throughout the
whole country, so we are trying to get to the whole 50,000 staff and contractors. Thats being done
by the CEO and myself and other members of the senior leadership team.
So we are speaking to the staff, and we are answering all their questions. So its about making
sure that all staff are aligned with the new strategies,
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because we are going to have that alignment so we can really deliver on the vision and really
deliver what customers need.
You know, theres been a fantastic response to these road shows, with staff excited about the
challenges, excited about the opportunities ahead, and excited about a new Telstra, if you like.
Weve also but just putting up, you know, signs and senior leader management, senior team talking
to people, just doesnt make it happen, so theres a lot of activities going on which will help
imbed the right behaviours into the organisation.
So weve set six behavioural requirements that we are looking for. Everybody in the company should
put the customer first. We are empowering our people in order for them to be able to do that.
Winning in the market is a behaviour that winning in the market is top of mind, is a behaviour
that we want. There has been somewhat of an attitude in the organisation that, you know, We are
the big guy, we are the incumbent, we are supposed to lose market share.
Well, bugger that, we
need to win. You dont go out on a football field to just play, you go out to win. So a behaviour
and an attitude that we want in the company is that we are here to win. And, of course, a
behavioural sense of urgency must prevail, and we want our people to believe that anything is
possible and, lastly, that we get it together, it says there, but what that means is we succeed
together, that we actually work together in achieving this.
So look, we are investing in our
people. We announced November 15, $200 million injection into training, and in March we signed a
contract with Accenture to introduce a new training program to our field staff not for the whole
200 million, but for the field staff element of the program, and we are bringing training and
development that has already been produced and developed for the field staff because, hey, guess
what, IP networks and so on have been introduced elsewhere in the world. Again, we are not
reinventing these things.
So understand that agreement, Telstra is using Accentures global expertise, so our field staff are
skilled in those new technologies, can deliver better service to our customers and, as a result of
this agreement, our field service staff will have greater skills and understand the network and
advanced IP technologies.
I mean, our field workforce, their actual job changes significantly.
Importantly, as well, weve aligned the management incentive program to focus on the achievement of
our strategic objectives, and we said a little bit about that on the strategies day.
So let me just finish off. I guess well nearly just finish off with a bit about regulatory. I
just want to clarify the regulatory principles that we are seeking for existing and planned
investments. We all understand that there is substitution from fixed line to wireless, from legacy
services to IP-based services, from legacy services to next generation high-speed networks, both
fixed and wireless, and we recognise that in instances where there are clear bottle-necks,
particularly around legacy, that
regulation is required to provide competitors access to those bottle-neck services.
However, the issue around that, of course, is that that access should allow us to recover costs.
However, when it comes to undertaking investments in new networks that will provide high speed and
improved services to customers at a fairly significant cost to the company, the company needs to be
able to earn a return from undertaking this investment. Thats our shareholder responsibility, our
shareholders expect and are entitled to earn a return on
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significant investments where the capital, their capital is at risk.
And thats our argument for fibre to the node. We are not arguing for an access holiday. We will
provide competitors access to whatever it is, on the right commercial terms.
On mobiles the recent comments that the 3G network should be regulated or, should I say,
reportedly said that it should be regulated we believe that that would be a backward step. There
is no wireless regulation anywhere in the world, except perhaps in some underdeveloped countries.
Mobile has flourished due to the competitive nature of the industry, not through it being
regulated. So we welcomed the Minister For Finances comments over the weekend, and on Thursday or
Friday, I think it was, that the Government wants to ensure regulatory certainty, and that it is
quite confident that access to new mobile services will not be regulated.
And, lastly, in closing, just let me just reiterate our longer term financial outcomes that we
expect from the transformation of Telstra. Of course, they remain subject to reasonable regulatory
outcomes that we all hope will be very much on the horizon. We are committing to 2-2.5 per cent
regulatory growth, and 20-25 per cent of that regulatory growth will come from new services. It has
to, if we are going to achieve that.
Our 2010 cost structure will be no higher than back in the fiscal 06, so well have a bit of a
hump in the next two years, but then we are back to those sort of levels. And that for fiscal 2010,
we expect either our margins would have recovered from between 50-52, and I tried to explain how we
think thats possible, with both low cost revenue producing products and services from fewer
platforms.
We are going to spend $2.5-$3 billion capital above our original plan, so if you think about it,
about $4 billion a year, over five is 20, so thats $22-$25 billion to transform the business. And
after transforming the business, we expect the CAPEX sales to go back to about 12 per cent, and
then I guess to grow in proportion to future revenue growth, and we expect to generate free cash
flow in the order of $6 to $7 billion by 2010.
And, of course, the last one there the
controversial dividend, of course; but, look, our intention still is to pay 28 cents per share
subject to board considerations and, you know, you wouldnt expect us to say anything else than
that. And, of course, a board consideration includes if there is a nasty regulatory outcome.
So I hope what Ive said today helps you understand a little more of what we are doing with our
transformation, and Ive added today, I guess, what we are trying to do with the behaviour of our
people, or the culture, if you like, of our people. So thank you very much for listening, and I
will now take some questions.
TIM SMART: Thanks very much, John. We do have some time for a few questions. I think theres a
couple of microphones around, so if you put your hand up if youd like to ask a question.
Perhaps I will just kick off by asking one to you, John. You previously said you would not roll out
fibre to the node without certainty, in terms of the commercials. Is it possible that you will get
certainty on fibre to the node, sort of, by October/November this year, do you think?
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03.05.06
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John Stanhope |
Transcript produced by WordWave International
JOHN STANHOPE: Well, I think weve said recently the discussions with the regulator are quite
constructive. Obviously I am not going to go into the details of those discussions. The principle
of a reasonable return on a new investment is certainly understood by the regulator. You know,
these things will come down, at the end of the day, to what is the wholesale price, and what is it
that is embedded in that price, in terms of the rate of return, so it doesnt take you long to
agree to some principles, but like all those things, it comes down to the dollars, at the end of
the day. But so far so good.
I think, you know, we are working to a timetable which, you know, youve seen in the press the
expectation of 8 May, that the Cabinet will meet to talk about those things. Theres a lot for them
to think about on that day, so we shouldnt have too high an expectation of what might come out of
that day, given its a very complex issue.
SCOTT MADDOCK: John, the 3G roll out, you say that you are going to rationalise the systems, and
thus save costs, yet you are going to have full roaming to 2G, so you are going to maintain at
least one 2G network.
JOHN STANHOPE: Yes.
SCOTT MADDOCK: So where does the rationalisation come from?
JOHN STANHOPE: CDMA we wont have a CDMA network.
SCOTT MADDOCK: So youll still have two networks, as you do now.
JOHN STANHOPE: Yes, we will, certainly initially, and it will take some time before the whole 8.6
million customers move over to a 3G network, but eventually you get there, I guess, but certainly
in the short term you get the CDMA-type rationalisation, and then everyone in the world will go
from 2G to 3G. But that will take longer, Ray.
Theres only 1.6 million customers on CDMA. 7 million of our customers, Im talking about theres
7 million on GSM. So thats a slower transition, and a slower reduction rationalisation, but
certainly CDMA is the first one to go, and look, theres systems and marketing and theres
collateral, and all those sort of things attached to CDMA.
SCOTT MADDOCK: But how long do you expect that youll be running three networks?
JOHN STANHOPE: Do you mean CDMA as well?
SCOTT MADDOCK: Yes.
JOHN STANHOPE: We announced that we expect to close CDMA 08, end of 08. Part of our logic behind
that, of course, is that you dont want your migration across from CDMA to 3G to cost you a lot, so
as people come off contracts so we are trying to do this in an orderly way, and a least-cost way,
because when a person comes off contract all of us in the industry come back and say, Well, do I
get a free mobile and so on, so closure, weve said, would be the end of 08 calendar.
Theres a bit of debate going on in the Government about that, but thats our position.
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03.05.06
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John Stanhope |
Transcript produced by WordWave International
TIM SMART: John, I might just take the opportunity to ask one question as well. With regards
to stakes in the ground. The first time you presented that was at your November strategy review
and, you know, quite a lot of those stakes are caveated against reasonable regulatory outcomes.
Six months down the track, and given the discussions you have had with the regulator to date and,
in fact, with the Government to date as well, how do you think you are placed with those targets
that you have set out there.
JOHN STANHOPE: Thats a loaded question. You know, the discussions are going well. If the
discussions conclude as well as they are going, then the stakes in the grounds are in good shape.
TIM SMART: I might just ask one more, John, if thats all right. One more question, if thats
okay. Optus reports tomorrow, and then youve got the March quarter data. Is there any challenge
in sort of the broad trends in the business youve seen, in the fixed-line decline? Is there any
change in the way youve seen the business purchasing over the first quarter?
JOHN STANHOPE: Absolutely no reason to change our current guidance, Tim.
TIM SMART: All right, with
that, I might just say thank you very much to John Stanhope, and thank you very much for your
interest in Telstra again.
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oo00oo |
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03.05.06 |
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John Stanhope |
Transcript produced by WordWave International
Next Generation Wireless Communications in Australia
Holly Kramer
Group Managing Director Telstra Product Management
ATUG Regional Conference, May 2006 |
Mobiles are now very much more than voice! |
From FY 2003/04 to end-December 2005 |
a34% increase in SMS messages
a>300% increase in MMS messages
a264% increase in active Mobile Browsing users
a356% increase in Mobile Games downloads
aMobile data traffic more than doubled |
Our handsets are changing too! |
Telstra handset base technology penetration (%) |
March 03 December 05
WAP 20% 55%
MMS 2% 43%
Java 2% 43% |
Strong growth during 2005
Acceptance by corporate and enterprise IT groups |
aQuick issue resolution
aEasy collaboration with distributed work teams |
Why have we turned the corner ? |
Inroads made into the key blockers |
aService and application performance aService, application and device
cost aApplications aMore Content aService and device complexity
aSecurity of mobile devices |
Customers perception of performance is a function of: |
aNetwork speed and quality aDevice performance
aApplication design and quality |
Also requires close cooperation with all parties involved in service delivery |
Improving performance
3G launches |
By end of 2005, all major carriers had launched 3G services
Support for |
aHigh speed data (> 200kbps) aMultimedia
aVideo calling and messaging aVoice
aSMS |
Improved price/performance |
Significant improvement of price and performance of wireless data services |
Better understanding of value propositions |
Reducing risk in investments in wireless enterprise solutions |
Applications community maturing |
aTransport Logistics
aMining aHealthcare |
aBetter resource utilisation aImproved
customer service |
Example : Commonwealth Games 2006 |
Broad range of Commonwealth Games content to our 2G and 3G customers |
Real time video feeds (8 real time channels) for our 3G customers |
Paid per event, no carriage fee |
News, medal tally, schedules & event Results |
Good example of next generation technical and business challenges |
Device manufacturers improving in device usability |
Walk Out Working Telstra initiative to enable all devices out of the box |
aRequires close cooperation |
with key device, application and infrastructure partners |
One Click, One Touch, One Button, One Screen, One Step |
Improving security of mobile devices |
Significant increase in laptops & PDAs accessing corporate networks from outside the
office |
aDevice control
aUsability
aMultiple access options |
Telstra & iPass working together to deliver seamless & secure enterprise connectivity |
Telstra Technology Roadmap |
Telstra has continued to invest in multiple platforms |
2G 2.5G 3G Super 3G 4G
Sharing
3GSM
HSDPA1
3GSM 10 Mbps
& 2 1 Gbp peak (WCDMA )100 Mbps peak
550-1100 Kbps(target goal)
220-320Kbps(target goal)
GSM
EDGE GSM
GPRS 100-130 Kbps Telstra Today
9Kbps 30-40 Kbps |
Deployed Active rollout
1x EVDV Retaining option
1xRTT
CDMA 50-70 Kbps 1x EVDO Not currently
CDMA 14Kbps 400-700 1x EVDO pursuing
Kbps Rev A |
600-700 Kbps
Partial National rollout rollout
Trialled
Broadband IP Flarion
Wireless WiFi WiMax |
Speeds quoted are average to high end average |
Most pervasive, homogeneous, high capacity wireless broadband network
in Australias history |
Greater than 98% population coverage |
1.6 million square kilometres of coverage |
Consistency of services in metropolitan and country areas |
Orange areas combined represent City to Country coverage equal to CMDA coverage today |
3GSM family of technologies |
a82% of the global digital mobile market a1.8 billion mobile
users globally |
Average data rates between |
500kbps and 1Mbps at launch |
aApplications developed for one technology |
Significant platform simplification
2G 2.5G 3G Super 3G 4G
Sharing
HSDPA1
3GSM 10 Mbps
& 2 1 Gbp peak (WCDMA )100 Mbps peak
550-1100 Kbps(target goal)
220-320Kbps(target goal)
GSM GPRSEDGE
9Kbps 30-40 Kbps 100-130 Kbps Telstra Today |
Deployed Active rollout
Wide Area WirelessRetaining option
Not currently
Short Range IP pursuing |
For city-based customers: |
Significantly improved coverage compared to their GSM service
today |
Improved city coverage, wireless broadband and 3G services |
Better in-building coverage
Much improved international roaming |
Available across a single national network! |
aBoth CDMA and the new network will work concurrently for some time to
assist transition to the new service. |
aCDMA will be available until 2008 when replacement services and
coverage are the same or better. |
Network deployment progressing
Well down the handset & device procurement path for 3GSM850
Exciting service portfolio in development
Communication with our CDMA customers well progressed |
Telstra committed to success |
Pieces of the next generation wireless service puzzle now in place
Significant business development ongoing
Industry capabilities maturing |
Telstra is committed to next generation wireless success |
Next Generation Wireless Communications in Australia |
Group Managing Director Telstra Product Management |
ATUG Regional Conference, May 2006 |
Telstra Corporation Limited ASX Investor Hour Sydney May 2006 |
Tarek Robbiati
Deputy Chief Financial
Officer |
These presentations include certain forward-looking
statements that are subject to various risks and uncertainties. Actual results,
performance or achievements could be significantly different from those
expressed in, or implied by, these forward- looking statements. Such
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties and other factors, many of which are
beyond the control of Telstra, which may cause actual results to differ
materially from those expressed in the statements contained in these
presentations. For example, the factors that are likely to affect the results of
Telstra include general economic conditions in Australia; exchange rates;
competition in the markets in which Telstra will operate; the inherent
regulatory risks in the businesses of Telstra; the substantial technological
changes taking place in the telecommunications industry; and the continuing
growth in the data, internet, mobile and other telecommunications markets where
Telstra will operate. A number of these factors are described in Telstras
Annual Report and Form 20-F. |
All forward-looking figures in this presentation are
unaudited and based on AGAAP. Certain figures may be subject to rounding
differences. All market share information in this presentation is based on
management estimates based on internally available information unless
otherwise indicated. |
These presentations do not relate to the offering of any
shares in Telstra. You may be aware that the Commonwealth is considering
selling its stake in Telstra. If any sale of the |
Commonwealths stake in Telstra proceeds, a prospectus for the offer of those
securities will be made available to Australian investors at the time of the
offer and anyone wishing to acquire shares under the offer will need to
complete the application form that will be in, or that will accompany, the
prospectus. 1 |
1
Telstra the leading player with scale |
Telstra is well positioned to take advantage of
truly converged communications... |
Telstra offers a full suite of communications services |
Wireline Unparalleled reach to customers across Australia |
Wireless already rolling out one of the
worlds most advanced networks Strong advertising &
search capability via Sensis BigPond Australias
largest broadband provider |
The strongest brand name in the industry in Australia |
The highest market share in Australia while
proactively managing offshore opportunities |
Ability to drive economies of scale
Strong balance sheet & cash flows allow us to fund growth opportunities |
Revenue and cost trends are concerning... |
Income Growth
%
5.0 4.6%
4.0
3.0 2.6%
2.0 1.9%
1.0
0.0
1H05 2H05 1H06 |
Revenue mix shifting to
currently lower margin
products |
We have too many of
everything
2 |
2
Our vision: a world of 1 click, 1 touch, 1 button, 1
screen, 1 step solutions that are simple and valued by
customers |
Implement market based management to know the customer like never before |
Focus on integrated services
Invest to take out complexity and cost
Win in mobiles and broadband
Invest in new services and applications to differentiate ourselves
Accelerate opportunities at Sensis |
Target investment to where we can create value for our
shareholders |
Telstras competitive advantage will deliver value |
Customer knowledge
greater understanding
of customer needs through
Market Based Management |
Differentiation
leverage
innovative Telstra
applications,
services, BigPond and
Sensis content to
deliver a richer
customer experience |
SIMPLICITY customers are willing to pay for ability to access content, services and
applications across multiple devices, eg mobile, laptop, PC, home phone |
Coverage
national coverage
over both fixed and
high speed national
3G wireless networks 3 |
3
Transformation update 3G 850 network |
Telstra and Cingular first to roll out 850 |
Other carriers considering 850 networks, some of these
involve migrating from CDMA to 3GSM |
Greater breadth of coverage |
Necessary for Australias landscape |
· Less base stations required, less cost |
Superior
in-building coverage
Single national network |
Economies of scale through rationalisation of platforms
Range of handsets and PC Cards are being developed by
vendors |
Underlying System Transformation |
New BSS and OSS systems will deliver dramatic
simplification and new capabilities cost effectively |
Business Support
Systems (CRM, Billing &
Care) |
Operational Support Systems |
80% reduction in number of systems in 5 years, from 1,252 in Nov 2005 |
Transformation timeline over 3-5 years
Systems will be integrated and customer-centric
A few proven world class partners
Commercial off-the-shelf packages |
Incremental change is not enough we will transform our IT capability4
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4
I Business principles concentrate on customer
I Competitive differentiation developing
relationships v selling I Understanding of customer
segment unique needs I Extensive research to
determine segments weve identified seven different customer segments |
I Deliver value by meeting segment needs
I Market structure determines organisational design
I Emphasis on profit & loss at segment level |
Our principles for regulation |
ILegacy networks/services |
IRegulate under existing rules |
INext generation networks new rules required which: |
IIncentivise investment and allow an appropriate return on capital to shareholders |
IRegulated access given to competitors on strictly commercial terms |
ICompetitive market 4 carriers, all with 3G networks
ICompetition has driven innovation and investment in
mobiles IGuarantees required that legacy regulation
will not be applied 5
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5
FY06 EBIT change vs. FY05 (percent) |
September 05 Program EBIT Net Program opex Additional D&A due to Total R&R provision |
Intention to pay 28 cps dividend, subject to board approval |
Telstras transformation will deliver... |
1 click, 1 touch, 1 screen, 1 button, 1 step Simplified and
integrated customer experience |
Australia
s leading ISP and services
entity |
Australias leading information resource 50 years of
experience managing Australias leading local business |
Biggest network in Aust |
· Best in-building coverage |
Australias largest IP network |
· Common standards & platforms |
· Faster
development and
deployment of
services |
6
Revenue growth
New product revenue
Cost
EBITDA ($)
EBITDA margin
Workforce
CAPEX
Free cash flow |
2.0% to 2.5% p.a. (FY10 vs. FY05)
20-30% of new revenue growth by FY08
FY10 will be the same level as of Jan 1st 2006**
3-5% p.a. growth through FY10
50% 52% by FY10
Down 6,000 8,000 over 3 years
Down 10,000 12,000 over 5 years |
Falls to 12%
of revenue in 2010 after $2.5B
- $3.5B bubble in FY06-FY08 |
Intention to pay 28 cps to FY08*** |
*Subject to a
reasonable regulatory
outcome **Annualised
***Subject to normal
Board considerations 7
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Media Release
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Telstra appoints two new Non-Executive Directors
The Board of Telstra Corporation Limited today announced the appointment of Mr John Zeglis and Mr
Peter Willcox as Non-Executive Directors, effective immediately.
Welcoming Mr Zeglis and Mr Willcox to the Telstra Board, Chairman Mr Donald McGauchie said:
Appointing John and Peter brings exceptional experience and qualifications to the Board, including
international telecommunications experience.
John Zeglis has led a distinguished career in the US telecommunications sector and brings enormous
insight and experience to the Board. Currently a Company Director sitting on the boards of AMX
Corporation, Helmerich & Payne and State Farm Mutual Automobile Insurance Company, he had a long
career at AT&T, culminating in the role of Chairman and Chief Executive Officer at AT&T Wireless
INC., between 1999 and 2004. He previously sat on the boards of Georgia Pacific, Illinois Power and
Sara Lee Corporation amongst others. John began his career in the law.
Peter Willcox is one of Australias most respected and experienced executives and now
non-executive directors. He is a fellow of the Australian Institute of Company Directors, Chairs
Mayne Pharma, is a director of the CSIRO and sits on the advisory board of CVC Asia Pacific
(Australia) Limited. Previously he was the Chairman of AMP Limited and Mayne Group, sat on the
Boards of Lend Lease, JH Faulding and James Hardie amongst others. He was the Chief Executive
officer of BHP Petroleum between 1986 and 1994.
Both John and Peter have participated in significant corporate change processes during their
expansive careers and will be well positioned to make a major contribution to the transformation of
Telstra currently being implemented by the Chief Executive Officer.
The appointment of Mr Zeglis and Mr Willcox will require endorsement at the next Telstra Annual
General Meeting on 14 November 2006.
As previously announced, Mr John Fletcher will leave the Telstra Board on 30 June 2006.
Telstra Media Contact:
Andrew Maiden
Tel: 02 9298 5259
Telstras national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at:
www.telstra.com.au/abouttelstra/media
For news, views and discussion on telecommunications in Australia see
www.nowwearetalking.com.au
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Telstra Corporation Limited |
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ABN 33 051 775 556 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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TELSTRA CORPORATION LIMITED |
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/s/ Fiona Mead |
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Name:
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Fiona Mead |
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Title:
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Acting Company Secretary |
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Date:
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17 May 2006 |
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