Telstra's IT transformation hits speedbumps

Capital spending on IT in 2010 projected at A$200 million over guidance

The huge information technology overhaul which forms an integral part of its A$20 billion transformation programme is on track, Telstra said yesterday, despite predicting a A$200 million jump in capital spending on IT for its 2010 financial year.

The A$200 million increase over previous guidance was revealed at the company's annual investor day in Sydney yesterday. Telstra said the rise was due to the increase in scope of some projects, changed requests, additional compliance measures, and some new systems. (See also: "Telstra lays into NZ telco regulation")

But chief executive Sol Trujillo said: "There is no blowout on IT. This is Sol. Sol has continued to evolve the definition of what this business is about." Trujillo said he had added new parts to the business plan since the transformation was first revealed in November 2005 and that this was creating more IT costs.

Technology-related expenses would also play a part in a predicted A$300 million increase in variable capital costs for the 2010 financial year, with A$100 million to be spent supporting the rapid growth in demand for wireless broadband, and A$60 million spent on infrastructure for the company's "media comms" strategy, with items including media servers, datacentres and increased transmission capacity, chief financial officer John Stanhope said.

Discussing plans to cut between A$500 million and A$800 million in operating expenditure between the 2008 and 2010 financial years, Stanhope said Telstra had yet to enjoy maximum financial rewards as benefits from IT platform exits were slower to materialise than expected.

But the transformation was contributing to savings, including through reduced headcount. IT rationalisation would contribute to a predicted A$50 million decrease in operating expenditure in the 2010 financial year.

Trujillo also announced a change in the company's IT management ranks, with the promotion of John McInerney to chief information officer. The man leading the transformation initiative, Tom Lamming, had been acting as CIO since the departure of Fiona Balfour early last year. Mr McInerney will report to Lamming, who will become senior vice-president for transformation.

McInnery detailed some of the work yet to be done in the transformation programme. Projects include the installation of new operational support systems for mobiles in the fourth quarter of the current financial year, and similar systems for broadband platforms in the middle of 2009-10.

In August, Telstra admitted it had missed its own target of migrating 3.3 million customers onto new billing and customer relationship management systems by June. Executives yesterday were at pains to explain the complexity involved in the migration.

Chief operating officer Greg Winn said Telstra had migrated 6.3 million customers to the new billing and customer systems. The company will have moved seven million customers onto the new systems by the end of the year.

Telstra yesterday also opened a new front in its fight against structural separation, saying that pulling the company apart would not only ruin it as a business, but would also break its IT systems.

"The short answer is that you can't unhook it," Mr Trujillo said.

— Australian Financial Review

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