Changing the Game: from Legacy Systems to 1-click Telstra Services

Transformations: it can be a technology, IT, cultural, or business transformation, but nothing represents today's corporate reality more than this buzzword.

Irrespective of the industry, the pace of change is accelerating. The business landscape also constantly shifts through industry expansions or consolidations, changing regulations, and customers' insatiable thirst for new, better, cheaper services.

The way in which corporate leaders respond to these challenges and direct shareholders' resources underpins an organization's long-term value.

The past decade has seen data traffic explode with the advent of the Internet, mobiles nearing saturation in many developed countries, and a trend to privatize incumbent telecommunications companies. The more recent game, particularly for incumbents, has been to protect fixed-line businesses, primarily with minimal infrastructure investment and discount bundling to counter bucket pricing from aggressive and often single-product providers.

However, speed, reach and capacity are the new currencies driving industry change with most key telcos now seeking to transform to:

. power geographically large high-speed, fixed or wireless, broadband networks;
. eliminate product-oriented business models to deliver differentiated, integrated, and unique services;
. mitigate fixed-to-mobile voice substitution and narrowband to broadband migration with new revenue sources; and
. cut networks and systems costs and complexity by introducing next-generation networks (NGNs) to deliver 1-click solutions across all devices and platforms.

The 'acceleration point' for these transformations, when around 15% of services have migrated to an NGN, is anticipated to occur by late 2008, with most to be largely complete by around 2010. While there are common industry imperatives driving changes, each company's transformation will depend upon its answers to key strategic questions including:

. which approach to adopt and why;
. when to commence and how quickly to deliver it; and
. how to best finance it.

The New Telstra: under construction

Telstra is Australia's leading telco company in terms of scale and brand, and is the only provider combining fixed, wireless, cable and broadband offerings with an advertising, search, and transaction business. Telstra is also the country's most significant telecoms infrastructure investor.

However, like most incumbents, Telstra's ongoing growth prospects were limited given the high unit cost structure it faced from the complexity and expense of running thousands of legacy platforms and systems.

Last November, I announced a five-year transformation strategy to transform Telstra from a phone company into a media communications company ranked among the best in the world - one able to ultimately deliver long-term shareholder value. The strategy came with a vision to provide an enhanced and simplified customer experience across all devices and platforms in a 1-click, 1-touch, 1-button, 1-screen, 1-step way. It will also make it easier for our people to deliver and at a lower unit cost.

This New Telstra has an 'under construction' sign flashing as we concentrate on four primary transformation drivers: customer experience, networks, systems, and the regulatory environment.

Transforming the customer experience

Today, customers are time poor, juggle multiple duties, and have many devices to communicate and access information. Our job is to meet their communications and information needs - simply.

Using intelligence from more than 90,000 consumer and small business interviews, the New Telstra is using a market-based management approach to deliver innovative, value-based services. This means basing everything we do on the needs and wants of our customers, within the bounds of appropriate investment and return criteria.

This customer-defined approach is driving changes to Telstra's structure, processes, service delivery, and products. A key part is integrating our fixed, mobile and broadband services with our advertising and transaction business, Sensis. This is facilitating product differentiation tailored to customer needs, thereby increasing the value of Telstra services for the customer. By driving the business based on what customers value, shareholders will also get the best financial outcomes.

Transforming networks

The growth of converged information, communication, and entertainment services over high-speed IP networks is a strategic imperative driving industry transformation. NGNs promise to deliver integrated solutions across devices and platforms and provide customers with unprecedented flexibility and service control.

Telstra's transition from its circuit-switched network into a wireline IP, MPLS core network (Figure 1) will deliver multiple services at lower costs and faster speeds, driving information over a fiber-optic core network, which will have 77 times greater capacity. Telstra has now completed building all 18 sites across eight cities for its new, single IP/MPLS Core.

The new IP network includes:

. replacing 116 exchange PSTN switches with powerful Alcatel-Lucent softswitches in key capital cities;
. a state-of-the-art access layer to handle every type of connection - providing customer access to feature-rich broadband services;
. delivering services such as high-speed Internet, video calling, music and pictures over next-generation technologies; and
. delivering end-to-end connectivity allowing business access to go straight to the service edge so that, at the customer gateway, every access point is offered and supported.

The seamless transition of the IP network into Telstra's network will be tested at a new, $50 million laboratory to ensure unprecedented robustness and reliability within the network.

Telstra's NGN program also includes NEXT G(tm), a new, nationwide 3GSM 850MHz - HSDPA wireless network to replace three existing networks. Geographically, it's the world's largest national 3GSM network and more than 100 times larger and up to five times faster than any other Australian 3G network. It was built in less than a year - a world record for any network build. It's available to 98% of Australians with peak network speeds of 3.6 Mbit/s, increasing to 14.4Mbit/s in early 2007 and 40 Mbit/s by 2009.

Transforming systems

Investing in information technology - the systems that drive our business - is about upgrading our enabling capabilities, so that when a customer deals with one of our people, we're making it simpler, easier, faster and, in every case, at a lower cost. It will also eliminate legacy infrastructure: we are cutting 75% of Telstra's 1,200 business and operating support systems and 60% of its 330 network platforms.

Transforming the regulatory environment

The international telecoms sector has always been subject to wide-ranging regulations. While the industry is changing rapidly, regulation is generally not keeping pace. This is challenging governments and the telecoms sector worldwide.

Telstra is committed to regulatory reform reflecting the reality and requirements of the digital age's changing technology and consumer preferences. Much work is yet to be done to incentivize Telstra's shareholders to invest in the FTTN platform. However, we will develop further our HFC, DSL, and wireless.

A media communications company: changing today's game

Australia offers the best opportunity in today's world to get telecommunications right. And, when telecoms are done right, life improves for everyone - people, businesses and communities.

Telstra remains, without question, the only media communications company in Australia with the scale, scope, distribution channels, and local content to deliver advanced, modern, 21st-century telecom services to all of Australia. We will use our technology and capabilities to do this.

Telstra's plan for the future - our vision, our strategy - will irrevocably change the game in Australia and deliver long-term value for customers, shareholders, and the Australian community in general.

Mr SOL TRUJILLO
Chief Executive Officer, Telstra Corporation Limited