Telstra is axing 8000 jobs over the next three years as it tries to save $1 billion while tackling the cost of investing in new technology and increased competition from its rivals.
The announcement on Wednesday is part of raft of structural changes unveiled at the telco that have sent Telstra shares down more than seven per cent in early trade on the ASX, with the stock touching $2.70 – it’s lowest level since 2011 – before closing 4.8 per cent lower at $2.77.
Telstra CEO Andy Penn outlined the plan to staff before facing investors and analysts at a strategy briefing in Sydney
Telstra will axe one in four of its executive and middle management jobs and consolidate its back office operations as it cuts 8,000 employees and contractors over the next three years.
“We have to do this because I think as an industry we’re at a tipping point,” Mr Penn told reporters.
“I think the current nature of telecommunications products and services is unsustainable and it has to change and we at Telstra are going to lead that change.”
Telstra will set up a $50 million support program to help staff affected by the job cuts with post-employment support, training and coaching.
In May, Telstra warned that its 2017/18 earnings will likely be at the bottom of its guidance range of $10.1 billion to $10.6 billion, blaming increasing competition in mobile and fixed broadband, and rising costs from the national broadband network.
While the telco is sticking by that forecast, it now expects a fall in earnings for 2019 to between $8.7 billion and $9.4 billion – excluding restructuring costs of about $600 million.
Telstra expects its earnings to be affected by the increased rollout of the NBN in 2019, but believes it can save an extra $1 billion from improved productivity as a result of its restructure.
Mr Penn said the telecommunications sector had never been under more pressure, with the development of the NBN, significant increased competition, and huge pressure to invest in new technologies.
Under the restructure strategy, the telco aims to simplify its range of telecommunications products and services for customers.
Mr Penn said the current range of 1,800 plans on offer to business and personal customers would be slashed to 20 to help remove frustration many felt about issues including excess data costs.
“When I look at a lot of the activity in the business, it’s dealing with issues and complications and problems that we’ve created for customers because of the complexity in the design of the product,” he said.
“We are prepared to give up more than $500 million worth of revenues in the sorts of charges that we know have frustrated customers for many years … but ultimately we believe that will drive more customers coming to Telstra.”
As part of its restructure, Telstra will set up a stand-alone $11 billion unit, dubbed InfraCo, that will house fixed its infrastructure assets except those for domestic mobile, and may be a future spin-off or partly sold to a strategic investor.
Analysts said a plan for Telstra was overdue but cautioned the benefits of Mr Penn’s strategy would take years to materialise, leaving uncertainty that was unnerving for investors.