commentary Telstra chief executive Sol Trujillo will leave Telstra in a better position than when he arrived in 2005, but his successor will have to manage plenty of difficult legacy issues.
The new CEO will come into a company that is struggling to cope with customer migration.
Trujillo created one of the best mobile networks in the world but he failed to maximise the revenue from the sunk costs of Telstra's copper and fibre network.
Putting more traffic on the Telstra network will require the new CEO to repair Telstra's fractured relationship with the Federal Government. Telstra's shares suffer from an NBN discount despite what Trujillo says about the minimal impact on Telstra of a government-funded National Broadband Network.
Trujillo's replacement will inherit a three-quarter completed IT transformation. It is true that Telstra has migrated 7 million customers to Telstra's new IT platform, but it is yet to close key legacy systems.
Trujillo says Telstra's systems are working fine, but changed billing procedures and billing formats are pushing up customer call volumes to levels that could not be handled by Telstra. That is damaging the customer experience.
The new CEO will come into a company that is struggling to cope with customer migration. There will be a big customer migration happening later this year. Chairman Donald McGauchie repeatedly highlighted last week how important it was for Trujillo's replacement to be able to manage legacy systems.
In answer to a question at the company's half-yearly financial results briefing, McGauchie said he wanted to replace Trujillo with someone who has the "capacity to conceptualise for the future, strategise for that and execute". He also emphasised the need for the next leader of Telstra to understand emerging technologies.
"We really do need someone who can see around corners," McGauchie said.
Trujillo said McGauchie and he began working on succession planning from the day Trujillo replaced Ziggy Switkowski, but four and a half years of effort have not seen a natural successor emerge from within Telstra's ranks.
The Telstra CEO said Telstra had "terrific talent", but since he has been at the company only the chief financial officer John Stanhope has been given the opportunity to build any sort of public profile.
A big legacy issue that will confront the new CEO will be completing Trujillo's promised operating expenditure cuts of $500 million to $800 million by 2010.
Whoever takes over will walk into a company that will be cutting about 2,000 jobs to finish Trujillo's 12,000 staff reduction target. As well, the new CEO will have to cut more of Telstra's remaining 42,000 staff.
Trujillo's period at Telstra coincided with two major technology shifts — the significant upgrade in mobile network speeds and the improvement in fixed line broadband speeds. Higher mobile broadband speeds triggered a wave of growth that will not be repeated. Telstra's mobile data revenue rose 37 per cent to $979 million in the six months to December.
At the same time, the Bigpond division was able to steal market share from its competitors. But as Trujillo warned last week, the market penetration of 56 per cent means it will now be a much tougher ask to grow that business.
The excitement last week over the confirmation of Trujillo's 30 June departure date distracted from the fall in 2009 interim net profit and the full-year profit downgrade.
However, the 2 to 4 per cent downgrade on the market's consensus earnings forecasts for 2009 will go down as the smallest this profit reporting season. Even Telstra, which accounts for 75 cents in every dollar spent on telecommunications in Australia, has been affected by the economic downturn.
Telstra shareholders are unlikely to begrudge Trujillo his payout of about $3 million, which is one year's fixed base remuneration. Trujillo earned about $8 million in cash in 2008 and will probably pick up the same this year.
This article by Business Spectator's Tony Boyd is reproduced on ZDNet.com.au courtesy of a reciprocal publishing agreement.
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why does nobody mention that fact that Telstra needs to repair its relationships with its suppliers, its employees and anyone else that does business with it? Telstra is a terrible company to work with or for and consequently has to pay way more than the market rate to acquire talent (hence very high costs) and its suppliers hate working with it. It needs a total image overhaul as a result of the 'American years'. It's treatment of the government is just symptomatic of its treatment of anyone that comes into contact with the organisation