Telstra’s recent financial results have exposed significant underlying challenges within the company, particularly in its enterprise market, which has long been considered a cornerstone of its business. The 13% decline in net profit, down to $1.79 billion, is more than just a financial setback—it’s a clear indication that Telstra is struggling to maintain its competitive edge in an industry that is rapidly transforming. This decline comes despite a slight increase in overall revenue, which rose by 1% to $22.9 billion, largely driven by the growth in its mobile business.
The enterprise unit, which caters to large corporations and government agencies, has been a major drag on Telstra’s performance. The $311 million write-down in this division underscores the severity of the problems Telstra faces. For decades, Telstra dominated this market, benefiting from its legacy as a monopolist. However, the landscape has dramatically changed, with increased competition from both traditional rivals like Optus and new players in the ICT and Big Tech sectors. These competitors have been more agile in adapting to technological advancements and shifting customer needs, leaving Telstra scrambling to catch up.
CEO Vicki Brady has acknowledged the deep-seated issues within the enterprise segment, describing it as “a long way from where we need it to be.” This admission is significant, as it highlights the challenges Telstra faces in repositioning itself within a market that is evolving faster than the company can adapt. The enterprise market, which once offered high margins due to its custom-made solutions, is now under pressure from commoditisation and price competition. The need to cut costs and improve efficiency has led to drastic measures, including the announcement of 2,800 job cuts. These cuts, while aimed at saving $350 million, also reflect a broader shift in Telstra’s approach—moving from traditional, labour-intensive operations to a more streamlined, technology-driven model.
Telstra’s struggles are further complicated by the broader industry dynamics. The company’s mobile business, while still growing, faces its own set of challenges, including the testing of customer tolerance for price increases. Although Telstra added 560,000 new mobile customers in the past financial year, and mobile earnings climbed 9% to $5 billion, the sustainability of this growth is uncertain, especially as consumers become more price sensitive.
Despite the difficulties, Telstra has opted to increase its dividend, a move that may provide short-term relief to shareholders but does little to address the long-term strategic challenges the company faces. The market clearly recognises the uphill battle Telstra faces in its enterprise division, which is crucial for its overall profitability. Rebuilding this segment will require not just cost-cutting, but also significant innovation and a willingness to invest in new technologies that can meet the needs of modern businesses.
Telstra’s ongoing T25 strategy, which aims to simplify operations, improve productivity, and focus on core growth areas like mobile and infrastructure, will be critical in determining whether the company can turn things around. However, with the enterprise market becoming increasingly complex and competitive, Telstra’s ability to innovate and deliver tailored solutions will be key to regaining its position as a leader in this sector.
Telstra is not alone in facing serious long-term problems; the global telecoms sector as a whole is grappling with similar challenges. While telcos make substantial investments in new infrastructure, their return on investment is declining—a trend that is not sustainable in the long term. Simultaneously, there is increasing emphasis on the critical role telecom companies play in the overall social and economic well-being of countries, especially in the current unstable geopolitical environment.
Telstra, of course, must address its own financial problems. Its decision to cut costs and refocus its efforts on the enterprise market is a step in the right direction. However, the challenges ahead are significant and could eventually become a national issue. The question is whether there is sufficient political awareness to prompt countries to start considering Plan B options.
Both the company and the country must navigate a rapidly changing industry landscape, marked by the rise of big tech competitors and heightened concerns about cybersecurity. Telstra, as well as the nation, will need to go beyond traditional measures and adopt a more holistic approach to the telecoms market, one that is linked to a long-term vision for where this market is headed in our rapidly changing global environment.
Paul Budde