Over the last few months Telstra has indulged in a flurry of strategically disastrous announcements and non-developments. For instance, it has:
– tried to acquire OzEmail (rebuked by ACCC);
– tried to acquire Publishing and Broadcasting (rebuked by board);
– discussed the acquisition of Seven Network (has been doing this for years);
– tried to split off its online business (rebuked by board);
– proposed to sell off its construction business NDC.
This dog’s breakfast of initiatives didn’t make much sense to anyone and public opinion was reflected in the share market after the half-yearly announcement when Telstra wrote off well over $6 billion of the company’s value.
Telstra’s problems began in 1986, after the company launched Videotex, its Internet predecessor business.
Initially all went well, but a year or so after the launch the company decided that it wanted to own content. In a similar fashion to its current dotcom acquisitions and shareholdings the company began to either buy or secure equity in a range of companies. They included:
– online brokerage (bought from Fairfax);
– software downloading company (bought from PBL);
– e-commerce services for a dozen different industries;
– erotica (50/50 venture with Penthouse)
– and so on.
As far as we know none of these are still in existence. In the process, however, Telstra managed to annihilate a large number of start-ups – they were simply smothered by the much larger Telstra. And, due to the lack of proper deregulation, Telstra was able to promote its own services on its videotex network by discriminating against others via difficult indexing and search procedures.
The whole videotex business collapsed in the early 1990s.
Ever since that time I have argued that, while Telstra may be one of the best telcos in the world, it is not a media company. The company is built by engineers, run by engineers, their investment is almost entirely based on technology, and so on. There is absolutely nothing wrong with that.- On the contrary, they could exploit this by simply being the best telco in the country – delighting their wholesale and retail customers and charging fees that customers are prepared to pay, based on customer demand, quality, customer service, etc and not on monopolistic rents such as they currently charge in local and mobile calls.
With everyone now wanting to be on the Internet, and e-commerce poised to boom, there is a hell of a lot of network capacity required. Without a network there won’t be an Internet. What a prime position to be in if you run the country’s largest network! But no, Ziggy tells us that they are not a telephone company and Pretty tells us that the company doesn’t want to be in dumb pipes. Imagine a car manufacturing company saying that it didn’t want to manufacture cars, that it didn’t like steel and was only interested in painting cars in different colours and selling sexy accessories.
This is why the financial and business market is now so uneasy. They are all questioning the company’s long-term direction and strategies.
And Ziggy replies: ‘We don’t know. The company might be a different one in another 3 months’ time.’
Not a very encouraging response from a CEO.
While I realise that it is easy for me to criticise, it is nevertheless clear to the objective observer that the writing has been on the wall for over a decade and Telstra should have picked up on this by now.
Ziggy is presently talking up Telstra’s ADSL and cable modem service as potential money-spinners. They have been testing ADSL since 1994 and launched their cable modems in 1996. However, they were at a loss as to how to proceed because at that stage they were avoiding any investments that would look bad on the pre-privatisation balance sheets. They were ‘maintaining shareholders value’.
As long ago as 1989 it was known that the company’s network was well below international benchmarks but, with a total lack of vision and direction, Telstra made no developments in this area until ten years later, in 1999. They have now realised that these networks could be very profitable (according to our calculations – between $500 million and $1 billion could be generated from high-speed Internet services alone).
So where to go from here? In my opinion, this is easy to answer. Telstra should accept that it is a national network company and make sure that it is simply the best in town. They should concentrate on the network, on wholesale and corporate business. They should build new networks, use the huge profits to accelerate network upgrades and as soon as possible offer affordable high-speed Internet access, broadband facilities etc, as these will be the money-spinners of the decade.
They should immediately bring the price of unlimited ISDN access down to around $50 a month in order to regain a lead in this market. If necessary they should acquire a TV station – not for its programming but for its broadcasting infrastructure. Digital TV will become just another access technology and so will fit nicely into the company’s networking strategy.
They should sell off the dotcom business and Foxtel (or create separate companies for them), making some money on the stockmarket in the process, which will keep the shareholders happy. But they should keep the networks on which these services run within Telstra and ‘rent’ them out to media companies, ISPs and others who are much better at content, customer service, marketing, etc. They should create an open network environment, stop the current exclusive deals and let as many companies as possible use the Telstra network for whatever services they want to develop. These content- and marketing-based companies know the market much better than Telstra and they will generate lots of traffic over the Telstra networks, for which Telstra can, of course, charge them.
If these companies are doing a good job, people will want to use these services and Telstra will collect access charges, either from the customers or from the content providers via a service package. These new companies need lots of new services from billing to network management, interlinks with inhouse computers, intranets, software maintenance – in short; plenty of new areas for Telstra to move into, and areas that are much more closely related to their core business.
Telstra should really look after wholesale and corporate customers and ensure that they all use Telstra’s network and services for their customers – not because they have been bullied into it, but simply because Telstra is the best in a market., After all, unlike the newcomers, they have over 100 years of experience in this market.
Telstra should not feel threatened by the service providers.. It should immediately abandon all the legal actions it has instigated against them and assist the service providers (wholesale customers) to build-out their services and their customer databases.
It will be impossible for Telstra to dominate the entire country so they should work with other infrastructure providers – especially in the bush – to develop new networks. Why not score some Brownie points by helping others (like the many new regional networks that are springing up around the country) to provide good networks in places where Telstra finds it hard to deliver good services and/or to provide the quality needed by these customers. While it might be a good idea for Telstra to start up a rural unit, the best solution for the bush is to generate competition. After a decade of deliberations the government should stop procrastinating and open up the Universal Obligations to the competition – and may the best man win!
It’s time for both the government and Telstra to move into this brave new world. Once they have got their house in order there will be very little opposition from the Australian people (who own half of Telstra) to privatise the rest of the company.