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Management

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Executive Summary

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 The purpose of this report is to analyze Telstra’s external environment factors

and how this attributes to the organization's current position. Further, the report looks

at the financial performance of the organization and the stakeholder’s perspective given

this performance. The report deduces further the stakeholder’s priorities and

commitments for the organization given future industry projection and medium-term

strategies of recovering ROI on NBN network investments. The five-year historical

financial data of the organization shows a reduction in the organization’s revenue and

dividends something that can be traced to the organization’s growing external

competition and huge capital investment on the NBN network infrastructure. In

countering this huge threat to the organization, Telstra through a resolution of its

stakeholders will continue to complete the digitization of its services through the full

implementation of the NBN network. Additionally, the company will pay more

attention to building competencies and skills to adopt the 5G network, which is touted

as the market of the future for all telecommunication providers.

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 Contents
Introduction....................................................................................................................4

PESTEL Analysis...........................................................................................................5

Political.......................................................................................................................5

Economical.................................................................................................................5

Social..........................................................................................................................5

Technological.............................................................................................................5

Environmental............................................................................................................6

Legal...........................................................................................................................6

Five Forces Analysis......................................................................................................6

Threats of New Entrants.............................................................................................6

Bargaining Power of Suppliers..................................................................................6

Bargaining Power of Buyers......................................................................................7

The Threat of Substitute Products and Services.........................................................7

Rivalry Among Existing Competitors........................................................................7

Industry Key Success Factors........................................................................................7

Internal Environmental Analysis....................................................................................8

Discussion of Current Strategy....................................................................................10

The extent of Performance Acceptability by Stakeholders 250...................................10

Change in Customer Base............................................................................................12

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 Stakeholders and Strategy............................................................................................12

Conclusion....................................................................................................................13

References....................................................................................................................14

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 Introduction

Australia has a well matured and highly competitive telecommunications

market. The market has been growing steadily and will continue to do so over the

coming years. Industry reports and statistics define the telecommunications market in

Australia at two levels. The major providers in this market and the first segment is

composed of Telstra, Optus, Vodafone, and the second segment or the second-tier

market providers include Vocus-M2, TPG and Macquarie Telecom. Telstra is, as of

today, Australia's leading telecommunications and technology company. The

organization offers to its millions of customers a variety of communication services,

and it also competes in all of the telecommunication market segments.

Telstra holds a dominant market share of telecommunication services and

market in Australia. In 2020, the company was providing an estimated 18.3 million

mobile services1.4 million retail fixed standalone voice services and a further 3.7

million retail fixed bundles and standalone data services (Fernyhough, 2019). The

company’s purpose is in providing a connected future so that everyone can thrive in it.

Telstra prides itself in having the nation’s fastest and largest national mobile network.

A common feature across the Australia telecommunication market is that growth across

the industry today is driven by mobile broadband and Fibre-to-the Node (FttN)

(Yigitcanlar and Han, 2012). At the same time, fixed-line telephony traffic and revenue

are declining rapidly. Despite the growth in subscription to several telecommunication

services and products in Australia, the ratio of the telecommunications sector revenue

to GDP is declining from a peak in 2000 to an all-time low in 2019. Market growth is,

however, expected to resume growth in late 2022 according to industry predictions, and

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this will be after Telstra succeeds in the transition of its copper and HFC services to the

NBN.

PESTEL Analysis

Political

Political winds in Australia at the moment seem to indicate that the government

wants more openness every single day in the industry. This will have the effect of

reducing entry barriers for other players, and as a result, this will increase competition

for Telstra.

Economical

The price of commodity prices in Australia and New Zealand has been falling

due to a subdued GDP growth. Lower generation of income and especially given the

Covid-19 pandemic is negatively impacting the growth of telecoms.

Social

There is an increasing expatriate population in Australia that is of high income,

and this is driving the adoption of telecom services for Telstra up.

Technological

Telstra is heavily investing in technology by ditching the copper networks and

investing in mobile broadband and Fibre-to-the Node (FttN) technology. This

technology will improve services for its customers (Leung, 2010).

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 Environmental

Most organizations are considering their responsibility in reducing the carbon

footprint, and Telstra is no different as they look into the possibility of battery storage

for clean solar energy to run their operations.

Legal

Telstra’s operations are always regulated by complex regulatory compliance,

and this keeps on creasing in complexity.

Five Forces Analysis

Threats of New Entrants

A more politically open environment is encouraging younger entrants who are

technologically savvy to enter and challenge Telstra in the telecom market. This threat

is considerable as new entrants are not burdened by legacy technology like the copper

lines that belong to Telstra (Leung, 2010).

Bargaining Power of Suppliers

Suppliers for telecommunication companies are diverse in Australia, and their

market democratized. Thus, suppliers’ power is not substantial to diminish Telstra’s

earnings.

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 Bargaining Power of Buyers

Telstra’s buyers are very demanding. Never before has the demand for quality

at such low prices been experienced. As a result of this demand, Telstra has to improve

its products continually (Alizadeh and Farid, 2017).

The Threat of Substitute Products and Services

At the present moment, the number of providers of services that can meet a

customer needs differently is increasing. This represents a huge threat for Telstra, and

the company has to match the quality and technology of substitute products to maintain

its market position.

Rivalry Among Existing Competitors

Rivalry among existing players has the effect of driving down prices and

decreasing the overall profitability in the industry. The market is now quite

competitive, and over the years, it has been taking the toll on the organization's

profitability in the long term (Leung, 2010).

Industry Key Success Factors

There are several factors that influence the success of telecom organizations in

Australia. These key factors for Australia have included:

 Market position. The telecommunication market is affected by the presence

and domination of certain market segments by particular organizations. This is

reflected by the business size of every particular organization, number of

subscribers, traffic and connection times. Telstra has a lead on all these

categories.

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  Diversification. A company’s success in this market is also much influenced

by the ability of the organization to diversify its revenues based on business

and services provided. This is necessary given the nature of intense

competition in the market (Alizadeh and Farid, 2017).

 Operational management. The ability to generate efficient business services is

critical to the success of telecommunication organizations. Notably, the

organization’s ability to anticipate the rapid growth of technology and make

strategic investments has been essential.

 Quality of services. Quality services influence the success of an organization

in attracting customers and also in retaining them. Services from different

vendors can today meet customer demands in different ways, and therefore

success is dependent on having the best quality to shield yourself from

competition.

 Technology. Technology in telecommunication is so critical it may as well be

regarded as a factor of production. Market players with the best and most

recent technology can provide the most dynamic and robust services to the

market, and therefore success is also pegged on this critical factor.

Internal Environmental Analysis

Beginning the year 2000, the need for high-speed internet that could deliver

higher bandwidths became a defining moment for all telecommunication companies in

Australia and across the world. This demand was in the background precipitated by the

falling prices of powerful smartphones and other handheld devices that allowed their

users to consume massive amounts of content, both audio and visual on the go

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(Alizadeh and Farid, 2017). In Australia, the subscription from such mobile users and

the penetration of brands like Apple’s iPhone meant that Telstra had to engineer a

quantum leap in their technology services. This tipping point in consumer demand

heralded the start transition from the legacy copper-based telecommunication network

to one that was based on the Nation Broadband Network broadband and Fibre-to-the

Node (FttN) services.

Internally, Telstra’s efforts to transition all its legacy operations to the NBN has

been the mainstay of its strategic resource investment. Telstra is at the moment

experiencing intensive competition from new market entrants, and some of the entrants

do not have the burden of legacy networks that need upgrading like Telstra, and this

gives them an edge over the Telstra (Bradford, Cooper, and Gordon, 2010).

Consequently, the new entrants are offering dynamic, robust and flexible services to

the market that meets the needs of Telstra consumers in a better and different way. As a

result, Telstra must continue investing in the state of that art NBN that will

revolutionize its legacy services to digital services that can match its competitor

services.

The NBN will expand mobile coverage and shift demand toward the wireless

telecommunication services for Telstra customers. This new market is also going to

become a new revenue driver for Telstra, which has been initiating efforts to diversify

its streams of income. At the moment, Telstra is offering 4G access to an estimated

99.3% of its customers and full coverage under the 4G network will allow the provider

to enjoy even better economies of scale while maintaining a strong position in the

market (Bradford, Cooper, and Gordon, 2010). Needless, if Telstra is to position itself

as a highly differentiated market player, it must continue to invest in resources that are

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rarer than the 4G, non-substitutable and difficult to imitate (Leung, 2010). This goal at

the moment for Telstra is represented by its forays in the 5G network investment. A 5G

network investment represents this non-substitutable investment which is the ideal

resource-based view investment for the organization as it will give it capabilities for

the much-anticipated Internet of Things which is touted as the future market for the

telecommunication industry.

Discussion of Current Strategy

Telstra's oversight and the strategic board has set a direction for the

organization for the next decade in terms of strategy and business organization. This

direction encompasses the entire organization and is the result of deliberate planning

and emergent issues in the business environment as projected to happen in the coming

years. In line with this, Telstra announced a four-pillar strategy for the year 2019 to

2022. These strategies have been as follows:

 achieve global high performance in employee engagement

 attain a post-National Broadband Network (NBN) return on invested capital of

10 percent

 improving the experience of its customers

 extend its "network superiority and 5G leadership

These strategies explain Telstra’s priorities for business and strategy for the period

ending 2022.

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 The extent of Performance Acceptability by Stakeholders 250

Consolidated and audited financial statements for Telstra over the last five

years 2019 to 2015 in millions of Australia dollars indicate a profit of 2,149; 3,557;

3,874; 3,832 and 4,114 consecutively (Telstra - Financial results - Investors, 2020).

The declared dividends for the company per share of the same period have been on a

downward trend 2019 to 2015 as follows 16.0; 22.0; 31.0; 31.0 and 30.5 (Telstra -

Financial results - Investors, 2020). Given these financial results and data, one can

easily see that Telstra has faced hard economic and financial times over the last half

decade. Growth in business revenue and dividends declared to shareholders has been

going down steadily over the years. The net debt and liabilities owed by the company

to its suppliers over the five years period have increased over the years as represented

by the figures following from 2019 to 2015 respectively 14,727; 14,739; 15,280;

12,459 and 13,566 (Telstra - Financial results - Investors, 2020).

The five-year period earnings for Telstra have indicated a common and easily

identifiable trend which is marked by reducing revenues, increasing debt and smaller

and smaller dividends towards shareholders. The overall financial performance for the

shareholders has been nothing short of underwhelming. A combination of institutional

and retail investors owns and control Telstra today. The market capitalization of the

organization is today AU$34b, and of this number, institutional investors own the

greater percentage. An estimated 11 percent of the total shares are owned by

institutions, and a further 88 percent is owned by retail investors, and 1 percent is

owned by insiders.

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 As revenue and profits continue to fall and cost of operation and debts go up,

there can only be one reasonable explanation for this kind of performance. Telstra is

undergoing a difficult transition to the post NBN world. Additionally, several

regulatory initiatives by the Australian Competition and Consumer Commission have

led to dwindling profit and revenue in the Australian telecom market (Smith, 2017).

Some of these decisions have included a decision by the competition authority to cut

the amount that telcos can charge for Mobile Terminating Access Services (MTAS) as

well as charges for ADSL services known as Final Access Determinations for much of

the declining numbers (Smith, 2017).

Change in Customer Base

Telstra’s telecommunication subscription in Australia represents the dominant

market share with a subscriber base of over 18.3 million mobile services1.4 million

retail fixed standalone voice services and a further 3.7 million retail fixed bundles and

standalone data services (Fernyhough, 2019). As the biggest telecommunication

provider, this customer base represents people across the socioeconomic strata of

Australian society. As Telstra adopts more and more digital services, the millennial

population is becoming one of the mainstay populations that subscribe to the customer

base (Alizadeh and Farid, 2017). Expatriate populations in Australia who are also on

the rise seem to favour Telstra over its peers, and this is also likely to continue

experiencing growth.

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 Stakeholders and Strategy

Stakeholders have currently ratified a four-point strategy for Telstra to guide it

in the years 2019 to 2022. As per this strategy, Telstra will concentrate on achieving

global high performance in employee engagement the attainment of a post-National

Broadband Network (NBN) return on invested capital of 10 percent, attaining

improvement of the quality experience of its customers and extending its "network

superiority and 5G leadership. For the stakeholders to continue supporting the strategy

through the medium term, a return on investment of the NBN investment is critically

important (Alizadeh and Farid, 2017). In future, the stakeholders want to ensure that

Telstra attains superior 5G capabilities over its industry peers because this will be one

of the hotly contested markets of the Australian telecommunication industry.

Conclusion

Telstra is the largest telecommunication provider in Australia by market share

and subscriber base. Over the years, a more liberal and open market has increased

market entrants, that are posing more competition for Telstra. Over the years, Telstra

has relied on a legacy copper-based network infrastructure and has only been

modernizing in recent years. The huge investment represented by moving to a digital

and modern NBN network has led to declining revenue and dividends for Telstra’s

shareholders in the last five years. The combined massive initial investment and

increasing competition are to blame for the organization’s financial woes in the last

half decade. Since 2019, the organization's shareholders have agreed on a four-point

strategy in the medium term ending 2022 that will ensure that Telstra organization

focus will be in gaining a 10 point return on NBN investment, developing strategies

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and competencies for the much anticipated 5G network and also increasing the

productivity of employees and quality experience of its customers. Telstra’s strategies

for the medium term are cognizant of the external environment and the issues facing

the organization as well as on a prediction of the changing terrain of the

telecommunication industry. An investment in 5G capacity as well a sustained

digitization strategy for Telstra will be the panacea for the organization’s future market

competition and success. Unless the organization gives consideration to developing and

building capacity in these fronts, it will continue to experience dwindling revenue and

dividends for the foreseeable future.

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 References

Alizadeh, T. and Farid, R., 2017. Political economy of telecommunication

infrastructure: An investigation of the National Broadband Network early

rollout and pork barrel politics in Australia. Telecommunications policy, 41(4),

pp.242-252.

Bradford, A., Cooper, B. and Gordon, I., 2010. Innovation and improvement for

Telstra's Australian energy and cooling systems: A ten year case study (pp. 1-

9). IEEE.

Fernyhough, J., 2019. Telstra's Mobile Market Share Rises Thanks To Belong. [online]

Australian Financial Review. Available at:

<https://www.afr.com/companies/telecommunications/telstras-mobile-market-

share-rises-thanks-to-belong-20190307-h1c3n1> [Accessed 6 June 2020].

Leung, L., 2010. Telecommunications across borders: Refugees' technology use during

displacement. Telecommunications Journal of Australia.

Smith, P., 2017. Telstra Profit Numbers Disappoint. [online] Australian Financial

Review. Available at: <https://www.afr.com/technology/telstra-profit-numbers-

disappoint-20170213-gubtfe> [Accessed 6 June 2020].

Telstra.com.au. 2020. Telstra - Financial Results - Investors. [online] Available at:

<https://www.telstra.com.au/aboutus/investors/financial-information/financial-

results> [Accessed 6 June 2020].

Yigitcanlar, T. and Han, H.J., 2012. Urban telecommunications network: technology

convergence and urban infrastructure. In Wireless Technologies: Concepts,

Methodologies, Tools and Applications (pp. 1136-1149). IGI Global.

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