Forget Telstra’s latest transformation program – it’s time to pull the whole thing down and start again: Kohler

Actually what David Thodey should do is build a whole new Telstra in parallel with the old one, and then shut the old one down. I’m serious. This company has been renovated more often than my house, which was built about the same time; it’s time to pull it down and start again (Telstra, not my house. Although come to think of it…)

Let’s face it, successive management teams have been transforming Telstra for 15 years, trying to get the organisation to put customers first and be more competitive, and all have failed.

Now we have David Thodey’s ‘Project New’: yet another transformation, as enthusiastically and convincingly promoted as all the previous ones. This one, according to the CEO, will result in Telstra being faster and more customer-centric, with lower costs and higher productivity. That is, the script is the same.

And what were Telstra’s wretched shareholders most concerned about yesterday after the unveiling of this wonderful new plan? The dividend. Their attitude, upon hearing about another transformation project, was: “Yeah, yeah, whatever. Just give us the cash.”

So David Thodey and his senior team must renovate Telstra while making sure they keep paying $3.5 billion a year in cash to their owners.

Despite the enthusiastic and convincing promises about how much better Telstra will be in three years’ time, investors are only putting their money into the company to get the 10 per cent yield. Without that the share price would collapse.

To what? What is Telstra worth purely as a growth story – that is, if it implemented Warren Buffett’s philosophy of not paying dividends at all because the best place for shareholders to put their money is back into the company?

Interesting question, but the directors dare not find out. Far better to do another patch-up job that doesn’t cost much money, so the cash can be kept flowing to shareholders.

Project New will cost $1 billion over a few years, much of which will no doubt involve redundancy payments to as many as 6000 staff, as well as some new software.

Meanwhile, the government is funding a whole new, very expensive, network to replace the one it used to own but got rid of to the unhappy investors who now sick to death of it and just want to milk it for cash.

In my view, Telstra’s board and management should build a whole new company to go with the whole new fibre network and the new world of devices that are being attached to both the wired and wireless communications networks.

And the best way to do that is to start again. They could either start from scratch, as Mike Quigley has done with the NBN Company, or buy a good, small telco that has scalable systems and migrate Telstra’s brands and customers across to it.

When that has been done, the old Telstra could be closed down, the lights turned out and the doors locked.

But during and after this transition, everyone would have to stop milking the company. The shareholders can’t keep getting $3.5 billion, the staff can’t keep getting $3.7 billion in salaries, the suppliers and contractors can’t keep getting $5 billion and the management team of 12 can’t keep getting $2 million a year each, on average.

That’s the problem with previous Telstra transformations and this one, or at least that’s how it looks: the stakeholders all just want to feast on the company, not rebuild it.

The urgency and seriousness of the task ahead, and the need to start again, was illustrated by an email this week from my friend John Abernethy, managing director of Clime Capital, who decided to buy an iPad and on the “free advice” of friends and family to hook it up to Telstra’s 3G network.

“The fun began when I phoned to activate my Telstra iPad sim card.

“As this is one of the best opportunities for Telstra to grow its subscribers to its 3G network and to participate in the migration from fixed line to mobile, I mistakenly thought that they would have hundreds of operators at the ready to deal with a market that is growing rapidly.

“Well, the first phone call took all of five minutes (mainly because the operator mistakenly thought I was activating a sim for a mobile phone) and I was assured that I would be connected within two hours. Alas there was a hiccup, as neither Telstra nor for that matter Apple, had informed me that I needed to adjust my iPad “settings” to connect to Telstra 3G. Pretty basic stuff but that’s the truth.

“For the next 48 hours I tried to talk to someone at Telstra but was informed on seven occasions (by a computer recording) that they were experiencing above-average enquiries and that there would be a delay in answering my call. I gave up seven times, each time after a 15-minute wait, after phoning at times as varied as 9am and 11pm.

“Off to the Telstra shop and they told me about the ‘settings’ issue.

“My point is simple: doesn’t anyone at Telstra, from the MD down, see the rollout of iPad as a wonderful opportunity for Telstra 3G to grow its customer base? If they did they would be giving their service away for a month, making it incredibly easy to connect and offering webinars on their Telstra website to help users connect.

“Thus a simple suggestion for Telstra: just have a web page that allows people to simply connect with Telstra.”

This article first appeared on Business Spectator.