Back in early March, I discussed Telstra’s transformation, under current chief executive David Thodey, from telecommunications giant to NAS (network applications and services) cloud services provider:
David Thodey’s Telstra is in the middle of a radical transformation. Unfortunately for the local economy, many of the jobs created are likely to be offshore.
David Burns, Telstra’s head of NAS, revealed the company’s growing international base would be serviced as part of the Infosys deal.
Telstra is now on track to become a major cloud services company across the Asia-Pacific region.
Unfortunately for the Australian IT sector and local tech workers, a significant part of “responsive and competitive” delivery appears likely to be done with outsourced jobs.
Sure enough, late last week, Telstra announced it is cutting 671 jobs. As predicted, most of the jobs to be cut will be from the company’s NAS division. No surprises either that the positions are set to be outsourced through Infosys.
So why is Telstra doing this?
The short version goes like this: Back in the day, aside from providing networks, telcos such as Telstra used to make a small fortune off highly lucrative over-the-top services. Long distance and international phone calls, excess data charges and roaming charges were big money spinners.
But, as with many other businesses, the voice call market has been disrupted by the mobile-first internet. After all, who in their right mind would pay Telstra $2 per minute for an overseas phone call when you can talk for free through apps such as Skype or WhatsApp? And that’s before we get to the NBN taking over the wholesale fixed line market.
Given the telecommunications industry is in the middle of a major disruption, Thodey basically decided to pivot a multi-billion dollar ASX-listed company from primarily being a telecommunications company into selling cloud-based services.
In my opinion, Thodey deserves a lot of credit for responding to industry disruption with a strategy that chases after new opportunities, rather than ignoring reality and trying to cling for dear life onto rapidly sinking business model.
It’s the sort of thinking that, for instance, a company like Fairfax Media could have used in the late ‘90s, when online classified startups such as Seek were eating its print classified business.
Instead of investing in online classifieds, Fairfax sank $220 million into a printing press in the outer-Melbourne suburb of Tullamarine. It’s probably no coincidence that Fairfax now has a market capitalisation of $2.07 billion, while Seek is worth $5.6 billion.
Unfortunately, chasing after emerging market opportunities carries risks.
For example, the cloud computer market is already home to some of the biggest names in the tech industry. Major competitors including the likes of the Apple-IBM partnership, Amazon, Microsoft and Google. Others, such as Samsung, are looking to take a larger share of the market.
Telstra might have raised $11 billion through its NBN negotiations, but Microsoft is sitting on a war chest of $US8.5 billion in cash and short-term investments. Meanwhile, Apple reported $9 billion profit last quarter while Samsung reported $7.1 billion. (Samsung’s profit result was considered a disappointment by the market.)
Telstra is hoping new products and services such as the cloud-based video conferencing and collaboration system it announced earlier this week will help it to lure business customers.
But how will it compete against Microsoft’s mature cross-platform business collaboration tools, which include Skype, Office 365, Exchange/Outlook, Yammer and SharePoint? Likewise, why download a Telstra collaboration client to your Android smartphone when Google already has Hangouts, Google Docs and Gmail preinstalled?
Nonetheless, despite the large competitors, there is every chance Telstra will find a small yet profitable global niche market through its cloud products. That’s not something that could be said if it were standing still in a disrupted industry.
There’s a lesson here for your business too.
Sure, there are risks with new technologies, but they also present new opportunities. If your industry is being disrupted, it can be better to take a punt on a new industry than to be stuck in one that’s in terminal decline.