Telstra Corporation Limited

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Telstra Corporation Limited

242 Exhibition Street, Level 41
Melbourne, Victoria 3000
Australia
Telephone: +61 (3) 9634-6400
Fax: +61 (3) 9632-3215
Web site: http://www.telstra.com

Public Company
Incorporated: 1992 as Overseas Telecommunications Corporation Limited
Employees: 50,761
Sales: A$19,840 million (2000)
Stock Exchanges: New York Australia New Zealand
Ticker Symbol: TLS
NAIC: 513310 Wired Telecommunications Carriers; 513320 Wireless Telecommunications Carriers (Except Satellite); 513322 Cellular and Other Wireless Telecommunications; 514191 Online Information Services; 514210 Data Processing Services;

Telstra Corporation Limited is a full-service telecommunications, information services, and network platform company that competes in all telecommunications markets throughout Australia. The former state-owned monopoly provides traditional telephone service to residences and businesses, local and long distance service, mobile telecommunications, and a comprehensive array of data services, including Internet and online services. Telstra is Australia’s leading Internet service provider. The company also provides wholesale services to other carriers and service providers, creates and maintains telephone directories, and offers pay-television services through its Foxtel subsidiary.

In addition, Telstra has literally wired Australia from coast to coast. Its fixed telephone network extends from major cities to the rural outback. Telstra also has developed a variety of delivery platforms over which services are provided, including transaction and digital data networks, a hybrid fiber coaxial cable broadband network, Internet protocol networks, and access to international satellite infrastructure.

Telstra’s Roots

In 1901 the Australian Postmaster-General’s Department was established to manage all domestic telephone, telegraph, and postal services. In 1946 the Overseas Telecommunications Commission was established to manage Australia’s international telecommunications. The Australian Telecommunications Commission, trading as Telecom Australia, was created as a separate entity in July 1975 following the breakup of the Postmaster-General’s Department. In 1980 a group called Business Telecommunications Services began lobbying for deregulation. A 1982 task force was recruited in response to requests for a public inquiry into telecommunications. The task force issued the Davidson Report, which recommended that Telecom be divided into two organizations. One of these organizations would be allowed to compete with privately owned carriers. The ruling Liberal-National coalition government accepted the report but did not implement the findings.

Meanwhile, Telecom unions protested against deregulation, which would lead to higher telephone bills, decrease the number of jobs, and lessen service quality. When the Australian Labor Party was elected to power in 1983, it affirmed its commitment to an ongoing telecommunications monopoly with state-run Telecom. But demands persisted from the private sector to privatize Telecom. While continuing to trade as Telecom Australia, the Commission became the Australian Telecommunications Corporation beginning January 1989.

The Early 1990s

The Australian telecommunications market was first liberalized in 1991 when new entrant Optus was allowed to build and own fixed and mobile networks. The Overseas Telecommunications Commission and Telecom Australia became the Australian and Overseas Telecommunications Corporation Limited (AOTC) following a February 1992 merger. The new company had posted annual revenues of around US$7 billion, assets of US$17 billion, and profits of US$1.5 billion. AOTC was the sixth-largest user of the Intelsat communications system and the third-largest owner of submarine communications cables. At this time its global network connected 218 destinations in 185 countries. Former AT&T executive Frank Blount was the surprise choice as chief executive for AOTC, and he planned to pursue global expansion for the company.

Telstra Corporation Limited became the legal corporate name of the merged entity in 1993. The domestic trading name, Telecom Australia, was changed to Telstra on July 1, 1995 to distinguish Telstra from other telecommunications companies in increasingly competitive and deregulated markets. The company had been trading as Telstra internationally since 1993.

In the early 1990s the competitive landscape began to change for Telstra and the Australian telecommunications market in general. In 1991 Telstra became subject to competition in the national long distance and international telephone service markets for the first time.

In 1992 Telstra faced increased competition for mobile phone service from Optus Communications, the consortium made up of Bell South, Cable and Wireless, Mayne Nickless, and institutional investors. In order to offset the potential loss of market share within Australia to new rivals, Blount embraced a service expansion plan to mainland Asia. The company already had strong footing in the Asian markets of Indochina, Hong Kong, Thailand, the Philippines, and Kazakhstan, but Blount looked to expand the company’s reach even further into Indonesia, China, Taiwan, South Korea, Malaysia, and Japan. AOTC’s strong domestic base in Australia would prove its biggest asset in this effort.

Optus Communications also became a competitor to Telstra in cable television in 1994, when Optus TV built its own cable network. This prompted Telstra to accelerate the building of its own high-bandwidth network and form a joint venture with Rupert Murdoch’s News Corporation. Dubbed Foxtel, the joint venture delivered pay-television services along with regular cable television. Service overlaps with Optus proved costly for Telstra, which later scaled back its cable television services.

The telecommunications landscape changed once again for Telstra in July 1995, when the company’s local telephone network was opened to provide access to other service providers. The move was forced by the Australian Competition and Consumer Commission, which ruled that other telecommunications providers should be allowed to provide services directly to homes and workplaces via the copper local loop owned by Telstra. The move greatly benefited two Telstra rivals, Cable & Wireless Optus and AAPT Limited. Competitors were also allowed to provide high-speed Internet access, data and pay-television services to add further competition for Telstra.

Telstra’s Road to Privatization

In the meantime, Telstra was generating respectable profits. The company reported record earnings of US$2.3 billion for the year ending June 30, 1996, despite the fact that Telstra had been investing heavily in infrastructure during this time. It also planned to double its projected spending to US$20 billion for the next five years for goods and services. Outsourcing was also on the horizon, which meant that a significant number of staff would be eliminated over the next few years. Telstra had already sold off its technology division to IBM, which cost 1,200 employees their jobs. Another 2,000 staff were released in late 1996 when Telstra sold its cable-laying operation to Leighton Holdings. Another sale, this time its conformance testing division, to Comtest Laboratories was also pending. In September 1996, Telstra management released an employee reduction plan to reduce staff levels by 23,000 to nearly 51,000 over the next three years. The board of directors framed the layoffs in the context of a leaner, newly deregulated telecom marketplace. However, critics felt the reduction represented an overreaction to weak competitors.

Although public opinion polls told Australia’s politicians that the majority of citizens were against the privatization of Telstra, the issue came to the forefront of the Coalition government. The nation was under mounting financial pressure due to the growing economic crisis in the Asia-Pacific region, and the Coalition government hoped that the A$8 billion gained from the sell-off its shares in Telstra would ease its fiscal burden. In a controversial move, the Coalition linked an A$l billion environmental policy to the partial privatization of Telstra. In doing so, it hoped to gain the support of the minority parties in the Senate which were more concerned about the environment than with the privatization of Telstra.

The fate of the government’s bill to privatize one-third of its stake in Telstra was in the hands of two independent members of the Australian Senate. Brian Harradine and Mai Colson previously wanted Telstra to remain a public entity, but at the last minute the two had a change of heart. With the support of Harradine and Colson, Telstra offered the Liberal-National coalition the crowning achievement of its first term. The two Senate members placed personal conditions on the Telstra sell-off: at least A$100 million had to be earmarked for ecological advances in Tasmania, home of Harradine; and Telstra was required to create jobs in both Tasmania and Queensland, Colson’s home. The most far-reaching concession was demanded of Telstra by the parliament, which retained the right to direct the company in the best interests of the nation.

Australians eventually began to look forward to a new, open telecommunications market. Local investors were expected to show heavy support for the Telstra share sale, just as they had for the recent privatization of the Australian airline company Qantas and the Commonwealth Bank. Foreign investment was to be capped at 35 percent of the privatized portion of the company.

Company Perspectives:

Our vision is to enhance our position as the leading full-service, telecommunications and information services company in Australia and to expand our presence internationally.

Australia’s telecommunications markets had opened to full competition on July 1, 1997. This meant that there was no limit on the number of carriers that own transmission infrastructure able to enter the Australian market. On November 17, 1997, the Commonwealth of Australia successfully floated one-third of Telstra on the Australian, New York, and New Zealand stock exchanges. Brokers were inundated with applications for shares of the telecom giant. The flotation made Telstra the biggest company by market capitalization in Australia, with a value of A$43 billion and more than 1.8 million shareholders. At the time, Telstra represented the sixth-largest telecommunications listing in the previous two months worldwide.

In March 1998 just months after the wildly successful initial public offering, the Australian government announced plans to sell its remaining two-thirds stake in Telstra after the next election, or by March 1999. The sale was valued at US$30 billion based on the Telstra share price at the time. But in July 1998 the Telstra privatization bill was defeated in the Senate. Lawmakers cited concerns that service in rural areas would suffer if Telstra were given completely to the private sector. A week later, the Cabinet approved a plan to privatize another 16 percent of the company, which would still leave 51 percent in state hands. The plan would include service guarantees to rural customers, but leave the government with less money to pay down debt.

Telstra launched a new range of wholesale high-speed voice and data services in August 1998. The products were aimed at Internet service providers and other carriers needing high-bandwidth paths between major cities in Australia. Although deregulation had chipped away at the former telecom monopoly’s market share, Telstra was able to counter the effect with productivity gains. During the previous six months, Telstra doubled earnings to A$l.l billion.

In 1999 Telstra reported Australia’s largest-ever profit when it announced US$2.2 million in earnings for the fiscal year ending June 30. CEO Ziggy Switkowski boasted that the company was succeeding in the face of intense competition in a changing industry. Telstra’s priorities were to improve the quality of service and reduce faults on its Customer Assess Network, and provide further investment in the new digital Code Division Multiple Access (CDMA) network. The company said CDMA would bring a new era in Australian mobile communications, particularly for those living in rural and remote parts of the country.

Ready to Compete

Telstra continued to devote significant resources to upgrade and modernize its networks and systems. The evolution of the marketplace demanded that Telstra change its corporate culture to be more commercially oriented and customer-focused. It also continued to form strategic alliances in order to expand its range of products and services.

Telstra announced in December 1999 that it would partner with Phone.com Inc. to offer wireless Internet access to its customers. The next month, Telstra planned to buy Internet service provider Ozmail for A$197 million. In August 2000, Telstra substantially increased the capacity of its Internet Protocol network in the United States due to an agreement with Cisco Systems.

At this time, Telstra planned to double its existing Internet capacity between Australia and the U.S. before the Sydney 2000 Olympic Games. Telstra built a A$400 million communications network to bring the Olympic Games to more than four billion worldwide viewers. The Telstra Millennium Network was nine years in the making. It consisted of 1.5 million kilometers of fiber-optic cable feeding Telstra’s growing national network, but it was also used to provide voice, video, and data transmissions during the Olympics. The project included 30,000 new telephone lines, the ability to handle 300,000 mobile phones, and 280 video links. Telstra had the sole responsibility of supplying all telecommunications for the 2000 Games. The network was continually used in Australia after the Games finished.

In October 2000 Telstra and Hong Kong-based Pacific Century CyberWorks (PCCW) announced plans for a new Pan-Asian telecommunications alliance. After lengthy negotiations, the two companies agreed to develop a global IP backbone, provide bulk carrier services for Internet-based information, and a Pan-Asian mobile phone firm. The deal significantly boosted Telstra’s regional reach. The deal, after some revisions, gave Telstra more control over PCCW’s mobile telephone assets and reduced its cash commitment by US$532 million. Telstra also said it would buy 60 percent of PCCW’s mobile telephone unit HKT Mobile for US$1.68 billion.

Telstra completed an alliance it sought for more than a year with Centura Software Corporation in April 2001. Telstra and Centura Software planned to aggressively mobilize securely transmitted data from anywhere in the world. The two along with Powerlan announced joint efforts to form the Enterprise Mobility Alliance.

The next month, Telstra said it expected less favorable industry conditions to affect the second half of the fiscal year. Also in May 2001, the Australian government said it would delay any further privatization of Telstra until the fiscal year ending June 30, 2004.

Key Dates:

1901:: Postmaster-General’s Department is established to manage domestic telephone, telegraph, and postal services.
1975:: Australian Telecommunications Commission is created as a separate entity.
1989:: Australian Telecommunications Corporation Act establishes Austel.
1990:: Approved merger of Telecom and Overseas Telecommunications Commission (OTC).
1992:: OTC and Austel become Australian and Overseas Telecommunications Corporation Limited (AOTC).
1993:: Telstra Corporation Limited becomes legal corporate name of merged entity.
1997:: Australia’s telecommunications markets opened to full competition.
1997:: Commonwealth of Australia successfully offers one-third of Telstra on the Australian, New York, and New Zealand stock exchanges.
2000:: Telestra builds a communications network to bring the Syndey 2000 Olympic Games to more than 400 billion worldwide viewers.