Telstra to cut costs and spend up to $US1 billion in Philippines to fight rivals

Telstra chief executive Andy Penn will combat rising competition and falling revenues by slashing costs and boosting the levels of customer service delivered through computer systems rather than people.
Speaking to investors in Sydney on Thursday, Mr Penn also revealed that the telecommunications giant was willing to pump up to $US1 billion ($1.4 billion) into owning a 40 per cent stake of a joint-venture to build a new mobile network in the Philippines, which would value the South-East Asian company at $US2.5 billion.
The push to slash human costs and push hard into relatively risky growth businesses in regions like Asia and eHealth come at a crucial time for Telstra as it faces pressure from competitors, regulators and the steady rollout of the national broadband network.
Telstra on Thursday night announced it would slash a total of 411 jobs from its call centres throughout Australia, of which 276 work for third-party contractors.


But Mr Penn was also maintained guidance for mid-single digit growth in revenue and low-single digit growth in earnings before interest, taxation, depreciation and amortisation for the telco giant.
"There is no doubt the dynamics in our core markets have changed – the competitive environment has increased in fixed, mobiles and in media and we're also further down the path towards the full migration to the NBN," he said. "The long-term migration to the NBN has a material [negative] impact to the financials of Telstra.
"[Over the next five years] we will need to continue to drive growth and our productivity programs further than before."
Telstra shares fell 1.4 per cent on Thursday to $5.50. The stock has fallen 10.6 per cent in the last six months.
Mr Penn said a push by all telcos to ramp up download allowances has contributed to a slight fall in the amount of cash generated from each postpaid mobile customer during the three months ending September 30, 2015 compared to the year before.
While Telstra is not certain if this will become a long term trend going forward, it does show that competition is having a real financial impact on the company. Mr Penn also added that the three months ending September 30, 2014 had been a bumper period.
Changing its accountability
Telstra chief financial officer Warwick Bray said the company was changing the way it held itself accountable on reducing the cost of doing business while being more productive with the resources available.
It has boosted productivity by $1 billion every year, of which around $500 million to $550 million has come from cutting expenses, moving some redundant jobs offshore and boosting automation.
"If given a choice, 75 per cent of … customers would rather go online and self-serve to resolve their problem," he said. "This represents an opportunity for our customers and for us to reduce call volumes into our assurance contact centres."
He said giving customers the ability to run their own accounts through smartphone apps and internet sites were helping to increase the number of customers fixing their own problems.
"This year we are increasing the automation in our NBN activation process, reducing the time to a working service while reducing the customer and employee effort required to achieve a market-leading NBN experience," Mr Bray added.
Mr Penn also provided a much clearer picture of Telstra's potential partnership with Philippines beer and food giant, San Miguel. Both companies want to become a third force in the Philippine's mobile market, up against local incumbents PLDT and Globe Telecom.
Estimates of how much the project would cost had varied wildly from $US500 million ($700 million) to $US3 billion ($4 billion) and Telstra shareholders are expressing concern about the lack of detail.
But Mr Penn provided more clarity and said Telstra would spend no more than $US1 billion for a 40 per cent stake of a joint-venture, which is the most a foreign company can own there. This money would go towards the construction of the mobile network along with extra cash raised by borrowing from banks.
Media outlet TMT Finance, which first revealed Telstra's push into the Philippines, reported that the telco has picked four banks to give it a $US500 million loan for the project – BDO, ANZ, DBS and Standard Chartered.
Mr Penn also slammed the Philippines' existing players, Globe and PLDT, which currently dominate the mobile market for their service levels.
"Let's face it – go to the Philippines, experience for yourself the sort of lousy service you get from the incumbent operators and you will see that the opportunity there for new operators to provide a much better quality service over an LTE network using better spectrum," he said.
"As for why not Myanmar … we recognised [the Philippines] would be a significant project and we got a lot of work there supporting San Miguel in terms of network rollout and design."
Nikko Asset Management portfolio manager Michael Maughan said it was good to see Telstra provide an upper limit for its investment in the Philippines.
"It's not an insignificant amount but it's probably within the limits of what the market is willing to see committed," he said.
He added that shareholders should not be overly concerned by the fall in postpaid handset revenue per user yet.
"What Telstra is telling you is it doesn't know how the competitive environment is going to play out," he said. "But competitors should be under no illusions that it will remain competitive.
"Telstra won't be sacrificing share to maintain margins - it will price its products competitively."


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