Swot Analysis Of Telstra

This report aims to examine the strategies applied by Telstra to remain strong in today’s highly competitive world. It will evaluate different business units of Telstra in order to formulate and implement those strategies. Mobile broad band service and 4G LTE voice have seen an extraordinary growth which makes them Telstra’s core products and is eager to expand in this growing area over next couple of years. This report gives an overview of Telstra’s key areas of operation including: • a brief Share price, financial result summary

• strategic business units with analysis, statistic in text, tabular and chart format

As well as report assist some of the Telstra’s strategic response to its internal and external environments.
There
are a number of strategies which Telstra may adopt in order to defend its competitive position and take advantage of its core competencies.
The following recommendations have been made: • Telstra must undertake technology shift as a major strategy.

• Telstra should enhance empowerment and engagement among the employees, to allow for a more responsive organisation.

• Telstra should hold off the competition by driving costs down below what new entrants can accommodate.

• Telstra must maximise its technical expertise and pool of skilled manpower to attune its products and services towards its customers

Table of contents Page No. Cover page

Title page
Executive summary i
Table of contents ii List of tables and figures iii
1. Introduction 1

2.0 Telstra business 1 2.1 Portfolio analysis of company 3 3.0 Share price analysis 5 4.0 Financial tracking & ratio analysis 7 5.0 Current external environment 8 5.1 PEST analysis 9 5.2 Porters five force analysis 10 6.0 Internal Analysis 11 6.1 Generic strategy - fit with core competency 12 6.2 Internal value chain 13 7.0 Conclusion and Recommendation 16 References list 19 Appendix A- Program evaluation matrix 21 Appendix B - Telstra Corporation limited half-yearly comparison 23

Lists of tables and figures

Tables
Table 1: products and their ratio to total revenues 2
Table 2: Market segments 3
Table 3: Telstra corp. five year financial summary 7
Table 4: Generic strategies 13

Figures
Figure 1: Telstra corporation limited, price history chart for six month 4
Figure 2: Telstra Corporation limited, price history chart for one year 5
Figure 3: SWOT analysis for Telstra Corporation 12
Figure 4: Michael Porter’s value chain model 14

1. Introduction Telstra Corporation Ltd. is Australia’s leading provider of telecommunications and information services in Australia, and one of the largest internationally. It was founded in 1901 under the Postmaster-General’s Department (PMG) which managed all domestic telephone, telegraph and postal services. It was renamed the Australian Telecommunications Commission in 1975, when telecommunications was separated from postal services. It was incorporated as a public limited liability company in 1991, and assumed its present name in 1993. The firm underwent partial privatisation in 1997, and in 2007 the Commonwealth’s residual 17% shareholding was transferred to the Future Fund (Telstra.com 2012). This report is an assessment of Telstra’s strategic response to its internal and external environments.

2 Telstra’s businesses

2.1 Portfolio analysis of company According to the Forbes Group (2012, p.1), portfolio analysis is ‘a systematic way to analyse the products and services that make up an association’s business portfolio’. The business groups or segments are to be classified according to whether they are core businesses, support functions, or money-makers. Then each business or segment is to be compared with the firm’s mission and vision statements, after which the program evaluation matrix (shown in the Appendix) is to be applied. Telstra’s mission statement is: “We build technology and content solutions that are simple, easy to use and valued by our customers. We strive to serve and know our customers better than anyone else.” Its vision is simply “To improve the way people live and work.” It articulates three values: (1) service and respect; (2) integrity and trust; and (3) teamwork and accountability (Telstra.com 2012).

Table 1- products and their ratio to total revenues

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Telstra’s products and their ratio to total revenues are shown in the preceding table. Immediately is may be seen that core products are fixed and mobile products, while the rest are support or money-makers. The greater proportion of revenues was realized from fixed products in 2008. By 2011 this includes PSTN (public switched telephone network) products and fixed broadband. The fixed products group accounted for more than one-third of revenues in 2008. By 2012, however, the group’s ratio was barely higher than one-fourth. Of the two products in this group, PSTN fell faster than fixed broadband. Mobile, on the other hand, rose from 26% to 34%, with total mobile services accounting for the greater proportion of revenue. Clearly, mobile meets Telstra’s mission statement better than fixed products, because it uses more updated technology and is clearly more highly valued by customers.

Table 2- Market segments.

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The second table above shows the market segments catered to by Telstra. Consumer and countrywide account for 40% of total income and 54% of EBITDA (earnings before interest, tax, depreciation and amortization). Emphasis on consumer and country wide, followed by business and enterprise, is consistent with the vision statement to improve the way people live and work.

3. Share price tracking The two figures on the next page show the movements in Telstra’s share price for six months (first figure) and one year (second figure). The second table shows Telstra’s OHLC bar price charts with the Australia 100 Index, and simple moving averages (MA) for 10 and 30 periods. The volume is shown as a bar chart at the bottom with a 20-period moving average. Telstra’s price is on a long-term uptrend, but is presently showing a short-term breakdown from its 10-day MA, and appears on the brink of a medium-term breakdown from its 30-day MA. The

long-term chart shows that Telstra mirrors the index but is relatively less volatile, exhibiting a lower beta (i.e., less variation) and therefore a lower trading risk (Edwards et al. 2007).

Figure 1-TELSTRA CORPORATION LIMITED, price history chart for six month
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Australian Securities Exchange, Telstra Corporation Limited. (TLS), 2012

Figure 2-TELSTRA CORPORATION LIMITED, price history chart for one year

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Australian Securities Exchange, Telstra Corporation Limited. (TLS), 2012

A look at the price progression shows a strong and sudden sell-down in the price of Telstra. This coincides with the news earnings report that shows Telstra’s earnings has fallen below analysts’ expectations after its former monopoly of fixed-line copper wires was switched off and turned over to National Broadband Network (NBN) Co., a state-owned company building a national broadband network. Telstra had a monopoly in phone services in Australia until 1991 and remained majority owned by the government until 2006. It subsequently signed agreements in March 2012 to turn over its copper-wire network to NBN Co. for the consideration of A$ 11 billion in payments and benefits. Since the announcement of the NBN program in 2009, Telstra has systematically raised its mobile customer base by at least 30 per cent, which may now slow down (Fickling 2012). Analysis of the volume of trading shows that the sell-down in August 2012 was attended by strong transaction volume, indicating that investors are re-assessing their valuation of Telstra. The share price of Telstra fell by nearly 8% and over the next months gradually appreciated, returning to its previous price only by November. Its consolidation, however, proved the stock price to be resilient even during the breakdown in the index in November (see chart). Today the stock is treading higher prices than its breakdown in August, indicating that investors see value in the stock despite the fundamental change in business.

4. Financial tracking & ratio analysis The table following shows the important financial accounts and ratios for Telstra for five years until June 2012. A set of financial ratios dovetail the accounts for the same five years. These tables are found as they are presented here in the official company website of Telstra, as they were reported to regulators in the Australian Securities and Investments Commission (ASIC).

Table 3
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The financial performance of Telstra shows the firm to be a ‘blue-chip’ for investors. Its growth is slow and steady, with no losses reported over the past five years. The company has a steady track record of dividend declarations, making it a cash cow and ideal for investment by income funds and lower-risk pension funds (Trahair 2012). Sales revenues are consistently

maintained within the narrow band of A$ 24.5 B to A$ 25.5 B. Profits (before income tax) have slightly descended from its high in 2009 (A$ 5.7 B) to a near-term low in 2011 (A$ 4.6 B) to finally recover slightly in 2012 (A$ 4.9 M). The transfer of fixed telephone service to NBN has therefore been effectively compensated for by increase in mobile revenues mentioned by Fickling (2012). Cost of sales and operating expenses are held almost constant, indicating that the firm maintains its efficiency in terms of supplier sourcing and operating processes. The firm’s total assets, equity and gross debt fluctuate slightly over the five years within a narrow band, although its net debt has been gradually descending over the past three years. Accrued capital expenditures also remain within a narrow range, meaning that there is no strong push towards expansion. Six financial ratios are reported by the company in its financial summary. Profitability, as shown by the return on average assets and return on average equity, remains steady at somewhere between 16% to 17% and 26% to 33%, respectively. The variation in ROAE was not so much due to fluctuations in income, but in changes in equity due to the firm’s share repurchase (Hoffman 2009). Gross debt to capitalisation gradually increased while net debt on capitalisation gradually decreased; the overall effect is a slight increase in EBITDA interest cover, justifying the gradual adjustments in debt by the earnings before interest, tax, and non-cash expenses it has generated. Net debt to EBITDA remains constant as it has in the last three years.

5. Current external environment
5.1 PEST analysis
Political factors • Australia has an open, efficient and transparent legal framework; corruption is less than in the US, UK, and Canada (IMD World Competitiveness Yearbook 2009). • Australian government continued to influence the telecommunications industry, particularly heavyweight Telstra (Ross & Bamber 2009, p.37). • Unions historically played a strong role in Australia’s telecommunications industry, and despite reduction in the power of unions, this promises to still be a major consideration (Ross & Bamber 2009, p.38).
Economic factors • The Australian economy is augmented by growing traditional trade with Europe and North America, and strengthening trade links with Asia pursuant to Free Trade Agreements (Australian Government, 2012). Increased trade will usher in increased volume of communication. • Agency costs are becoming lower, as may be seen from increasing dividend pay-outs and share repurchases, in the telecom industry and particularly Telstra (Easton & Howard 2005; Hoffman 2009).
Social factors • The impact of the internet and other new information and communication technologies have spurred the growth of social media, networking, and cyber-journalism (Bardoel & Deuze 2010). • Rural and remote communities are being linked with telecommunication infrastructure development to enhance education and health service provision in Northern Australia. Federal government subsidy shall apply due to high costs of access and thin markets (Bandia & Vemuri 2006).
Technological factors • There is a decline in fixed line telephony by 8.4% in 2011 and 8% in 2010, due to lower calling volumes and customer numbers (Datamonitor 2011; MarketLine 2011)

• Australia’s mobile market reached saturation with a penetration level of 125% by August 2011, precluding any further significant growth (Datamonitor 2011; MarketLine 2011).

• While fixed line segment continues to decline, continued growth in pay TV and fixed broadband market are foreseen since the 15% revenue growth in 2011 exceeded that of 2010 (Datamonitor 2011; MarketLine 2011).

5.2. Porters five force analysis
Internal rivalry
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The IT and telecommunications sector is dominated by Telstra, with the rest of the sector being fragmented. There are 136 companies listed in this sector, 129 of which are capitalised at less than A$ 1 billion. Internal rivalry is strong at the level of the smaller firms, but Telstra is clearly without a strong competitor in the local telecommunications industry.
Bargaining power of buyers Bargaining power of buyers is low. For decades, Telstra had been a government-owned monopoly, and the telecommunications infrastructure has been built around it. While buyers can go to other service providers, these providers will still have to link up with Telstra’s fixed line infrastructure from which Telstra still impacts upon buyers’ choices (Hepworth & Bingemann 2011).
Bargaining power of sellers Sellers’ bargaining power is low. This is also linked to the position of monopoly in Telstra’s fixed line business (Hepworth & Bingemann 2011). Telstra being the owner of the nationwide telecommunications infrastructure, suppliers will have to be price-takers from Telstra for them to capture a share of the Australian telecommunications market.
Threat from new entrants Threat of new entrants is low in the fixed line business, but for mobile technology new entrants have some opportunities, such as Optus, the Singaporean telecommunications company which is the second largest mobile communications firm operating in Australia (Hepworth & Bingemann 2011). Entry barriers remain high because of the capital expenditure and government permitting requirements new entrants will have to comply with.
Threat from substitutes Threat from substitutes for fixed line telecommunications is moderate. There are alternatives to fixed line telephony such as the internet and Skype technologies, which are gaining in popularity and have moderate switching costs. Telstra has no monopoly over such substitutes, but it has the capability to establish a strong competitive position these services.

6. Internal Analysis

6.1 Generic strategy - fit with core competency
Figure 3-SWOT analysis for Telstra Corporation.
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The core competencies of Telstra are indicated as strengths in the diagram, specifically its employee skills and capacity, sales growth, and technology infrastructure. It is hampered by its large bureaucracy and unstable management structure. With these, it must address the growing demand for IT communications and new markets globally, while repelling the threat of too much government regulation and competition from larger telecoms firms. Given its core competencies, Telstra can best compete on the basis of cost leadership. Having its technology infrastructure in place, and with its complement of skilled employees, the firm is positioned for economies of scale which allows it to minimize cost while maximizing sales volume. These competencies also allow Telstra to keep abreast of technological developments in IT communications. Presently, Telstra still operates almost exclusively in Australia because of its public interest mandate, but with the enhancing trade and commerce with other countries, increased volume of communication of Australian individuals and companies with counterparties in emerging markets presents global opportunities for Telstra.
Table 4- Generic strategies
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5.2 Internal analysis - internal value chain Michael Porter’s value chain model is presented below as visual guide for the internal analysis. Unfortunately, Telstra is straddled with a large bureaucracy (Barille 2009), having begun as a ‘large, bureaucratic public monopoly’ according to Griffin (2012), currently head of Telstra Global’s customer experience program. Significant factors that bear upon Telstra’s value chain are:

Figure 4- Michael Porter’s value chain model

[pic] • Product R&D: Telstra recently launched a 10-inch 4G table specially designed for Australians and which is intended to seriously challenge Apple’s 4th Gen iPad in this country (International Business Times 2012). The firm also relies on partnerships struck with other firms to distribute the risks and costs of R&D (Modem Users News 2008). • Leadership: Telstra’s new leadership, which took over in 2009, have adopted a transformational leadership approach, particularly in the transition that Telstra is seeking to achieve, from being a bureaucratic, government controlled public organisation towards becoming a more entrepreneurial, dynamic telecommunication company that can compete in the private sector (Inside Business 2009). • Human resources: Telstra has a talented and skilled pool of experienced workers. Its human resources strategy is supportive of the company’s organisational change by implementing people and cultural initiatives, leadership development, talent management, professional development, workplace relations, and employee health, safety and wellbeing (Telstra Annual Report 2012, p.97).

6. Conclusion and recommendation There are a number of strategies which Telstra may adopt, which may be patterned after the taxonomy of possible strategies outlined by Roberts (2005) in the following framework:

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In light of the preceding discussion in this report, Telstra may take advantage of its core competencies while defending its competitive position through the following strategies:
Positive strategies • Shift to mobile and internet-based communications technology – Telstra foresaw the decline in telephony and fixed line communication and its eventual turnover to NBN, thus its strategic move to mobile and IT communications was opportune. After the transfer, Telstra must undertake technology shift as a major strategy, which it appears not to have done enough of, given the government regulations. • Transformation to entrepreneurial from bureaucratic model – Telstra is large and bureaucratic, and has not as yet taken a decisive step towards becoming more entrepreneurial to be competitive. This should include strategic reorganisation to reduce the number of managerial levels and enhance empowerment and engagement among the employees, to allow for a more responsive organisation. • Enhancement of strategic global initiatives – Telstra should explore strategic partnerships and expansions into other countries where communication traffic is expected to grow in volume with Australia, particularly for business purposes.
Parity strategies • Maximisation of communications infrastructure – A core competency of Telstra is its established communication infrastructure which is a holdover from its position as monopoly. New entrants will seek to link up with this infrastructure to establish contact with current customers to avoid the high capital expenditure of setting up their own infrastructure. • Agreements struck with NBN and Commonwealth – Agreements which have been signed between Telstra, and NBN and the government, provide Telstra an advantage over other companies and new entrants in exchange for the transfer of the fixed lines business.
Inertial strategies • Cost leadership – The size and capacities of Telstra enables it to explore economies of scale compared to new entrants, thus Telstra should hold off the competition by driving costs down below what new entrants can accommodate. • Superior service – Telstra’s experience as a monopoly can hinder its competitiveness service-wise, therefore it must maximise its technical expertise and pool of skilled manpower to attune its products and services towards its customers.
Retarding strategies • Adopt a pro-active approach to R&D and new offering new services – Telstra has explored tie-ups with other original equipment manufacturers, some with disappointing results (Appliance Retailer 2012). While the intent is there, Telstra’s efforts have so far been only moderately successful. Networking with strategic partners and acquiring capabilities to enhance its technical competencies has to be seriously undertaken to keep in pace with large potential competitors who may be entering the market.

References
Australian Government 2012, ‘Australian Trade Commission.’ Business Friendly Regulatory Environment.
Available 13 December 2012 from http://www.austrade.gov.au/Invest/Why-Australia/Strategic-Location/default.aspx

Australian Securities Exchange 2012, ‘Telstra Corporation Limited. (TLS)’ Available 13 December 2012 from http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=TLS#chart
Bandias, S & Vemuri, S R 2006, ‘Telecommunications infrastructure facilitating sustainable development of rural and remote communities in Northern Australia.’ Telecommunications Policy,Vol.29, no.2, pp. 237-249
Bardoel, J & Deuze, M 2010, ‘Network Journalism: Converging Competences of Media Professionals and Professionalism’, Australian Journalism Review, vol.23, no. 2, pp. 91-103
Barrile, S 2009, 'Telstra: The Challenge Of Corporate Responsibility ', Busidate, vol.17, no. 2, pp. 7-9, Academic Search Complete, EBSCOhost, viewed 13 December 2012. 'Datamonitor: Telstra Corporation Limited ' 2011, Telstra Corporation, Ltd. SWOT Analysis, pp. 1-10, Business Source Complete, EBSCOhost, viewed 13 December 2012.
Donahey, M 2009, 'Telstra Revisited: Its Application To Bad Faith Registration ', Journal Of Internet Law, vol.13, no. 2, pp. 3-8, Business Source Complete, EBSCOhost, viewed 13 December
2012.
Easton, S & Howard, P 2005, 'Agency Costs at Telstra: A Case Study ', Australian Economic Review, vol.38, no.2, pp. 229-232, Business Source Complete, EBSCOhost, viewed 13 December 2012.
Fickling, D 2012, ‘Telstra Earnings Miss Estimates Amid Mobiles Push,’ Bloomberg. 9 August 2012. Available 13 December 2012 from http://www.bloomberg.com/news/2012-08-08/telstra-annual-profit-rises-5-4-amid-switch-to-mobile.html?cmpid=yhoo
Griffin, A 2012, ‘Driving Customer Advocacy.’ Telstra Global. Available 13 December 2012 from http://www.telstraglobalblog.com/regular-contributors/blogger/listings/allan
Hepworth, A & Bingemann, M 2011, ‘Telstra split ‘won’t fix monopoly’ as rivals fear reform will fail.’ The Australian: Business with the Wall Street Journal. Sept. 28, 2011. Available December 13, 2012 from http://www.theaustralian.com.au/business/telstra-split-wont-fix-monopoly-as-rivals-fear-reform-will-fail/story-e6frg8zx-1226148561515
Hoffman, G 2009, 'How safe is Telstra? ', Money (14446219), 118, pp. 90-91, Business Source Complete, EBSCOhost, viewed 13 December 2012.
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International Business T 2012, 'Telstra 4G Tablet vs. Microsoft Surface Windows RT: Will Australians Love Telstra’s Device? [VIDEO] ', International Business Times, 29 October, Regional Business News, EBSCOhost, viewed 13 December 2012.
MarketLine 2012, Company Profile: Telstra Corporation Limited. 18 May 2012. Available 13 December 2012 from http://store.marketline.com/Product/telstra_corporation_limited?productid=2B0B4C00-3298-4C53-9F58-C52C51C902EE 'Netcomm 's Telstra Partnership Unveils Wireless Device ' 2008, Modem Users News, vol.20,no. 9, pp. 2-6, Business Source Complete, EBSCOhost, viewed 13 December 2012. 'New Telstra team facing old problems ' 2009, Inside Business (ABC), Regional Business News, EBSCOhost, viewed 13 December 2012.
Roberts, JH 2005, 'Defensive Marketing ', Harvard Business Review,vol. 83,no. 11, pp. 150-157, Business Source Complete, EBSCOhost, viewed 13 December 2012.
Ross, P & Bamber, G 2009, 'Strategic Choices In Pluralist And Unitarist Employment Relations Regimes: A Study Of Australian Telecommunications ', Industrial & Labor Relations Review, 63, 1, pp. 24-41, Business Source Complete, EBSCOhost, viewed 13 December 2012.
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Telstra.com 2012, ‘About Telstra: Financial Results.’ About Telstra.
Available 13 December 2012 from http://www.telstra.com.au/abouttelstra/investor/financial-information/financial-results/
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Telstra.com 2012, ‘Vision and mission.’ About Telstra. Available 13 December 2012 from http://www.telstra.com.au/abouttelstra/company-overview/vision-and-mission/ 'Telstra: Its Future In The Brave New World ' 2009, Busidate,vol. 17,no. 3, pp. 5-7, Academic Search Complete, EBSCOhost, viewed 13 December 2012.
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Trahair, D 2012, Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever. Hoboken, NJ: John Wiley & Sons 'V-Tech manufactured Telstra brand phones withdrawn from Telstra Stores ' 2012, Appliance Retailer, vol.18, no.7, p. 4, Business Source Complete, EBSCOhost, viewed 13 December
2012.

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Appendix A- Program evaluation matrix.

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Appendix B –Telstra Corporation limited half-yearly comparison.

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Continued on next page

Continued from previous page
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Source: Telstra Financial Results, 2012

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2012 Full Year Results

Source: Telstra Financial Results, 2012

Segment Information

2012

2011

Change

2012

2011

Change

$m

$m

%

$m

$m

%

Telstra Consumer and Country Wide

10,267

9,915

3.6

5,467

5,075

7.7

Telstra Business

4,676

4,720

(0.9)

3,523

3,554

(0.9)

Telstra Enterprise and Government

4,325

4,142

4.4

3,453

3,331

3.7

Telstra Wholesale

2,101

2,194

(4.2)

1,933

2,031

(4.8)

Telstra Media Group

1,741

1,978

(12.0)

764

999

(23.5)

Telstra International Group (i)

1,643

1,336

23.0

312

230

35.7

TelstraClear

502

514

(2.3)

99

84

17.9

Telstra Operations

73

113

(35.4)

(3,679)

(3,744)

(1.7)

Other

79

231

(65.8)

(1,544)

(1,506)

2.5

Total Telstra segments (ii)

25,407

25,143

1.0

10,328

10,054

2.7

Other items excluded from segment results (iii)

96

161

(40.4)

(94)

97

(196.9)

Total Telstra Group (reported)

25,503

25,304

0.8

10,234

10,151

0.8

Total external income

Underlying EBITDA contribution

Year ended 30 June

Year ended 30 June