Restructuring Telstra: its Most Significant Change Since Privatisation

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At its recent Investor Day on 12 November 2020, Telstra announced a major restructure of its entire business operations into three separate legal entities – InfraCo Fixed, InfraCo Towers and ServeCo – under a parent company to be called Telstra Group.

Announcing the proposed changes at the Investor Day, Telstra CEO, Andrew Penn outlined the restructure and the rationale behind it: “InfraCo Fixed will own and operate our passive physical infrastructure assets: the ducts, fibre, data centres, subsea cables and exchanges that underpin our fixed telecommunications network.

“InfraCo Towers will own and operate our passive physical mobile tower assets, which we will look to monetise over time given the strong demand and compelling valuations for this type of high-quality infrastructure.

“ServeCo is not a new brand name; we’re just using it for the purpose of differentiating it from our infrastructure business because it is focussed on our products and services and customer support. It will focus on how we create and innovate products and services for our customers and deliver the best possible customer experience, including maintaining our significant network leadership. ServeCo will also own the active parts of our network – things like software defined networking that allows us to operate in a dynamic way.”

Telstra is retaining key elements of its network in ServeCo – including the Radio Access Network equipment on mobile towers, its spectrum holdings and the electronics that utilise the fibre in the fixed network – that underpin its strategic advantages and differentiation.

What’s driving the change?

Penn continued: “The challenges and disruptions of the last 6-12 months have reinforced the establishment of InfraCo when we launched our T22 strategy in June 2018: the increasing value of infrastructure assets globally; the importance of the digital economy, not only to business but to the whole of Australia and its economic recovery; and the dependence of the digital economy on telecommunications as its platform.

“Almost everything that happens today relies on telecommunications: every Google search you do, every time you use an ATM or pay for something by EFTPOS, very time you book a taxi or order takeaway, every time you have logged onto work or school systems from home during COVID or have been part of a video call – it depends on the telco network.

“As our collective futures become increasingly digitised, these dependencies are only going to increase. Our proposed new corporate structure reflects this new world and will help us support the foundation for it.

“As part of our T22 strategy we created Telstra InfraCo – a standalone business unit to manage the vast majority of our infrastructure assets. It was created to provide greater transparency of Telstra’s infrastructure assets; to improve the efficiency of how we manage those assets; and to provide optionality in an evolving industry.”

Citing the proposed benefits across all sectors of Australia, Penn added: “For our customers, we will continue to invest in the networks that are enabling them to thrive in the digital economy. We understand that customers should not have to care what telecommunications technology enables them; they just want it to work when they need it, to suit their needs and to be affordable. The bottom-line is we need all telecommunications technologies brought together holistically to meet the growing demand and support our digital interactions. That’s why having a business solely focussed on optimising every aspect of the networks’ foundation infrastructure, and a business (through ServeCo) using the latest software, radio technology, electronics and network smarts to bring it to life and provide the best coverage and customer experience in the industry, is critical.

“For our employees, these changes will make us a more sustainable and successful company in the longer-term. Our employees will benefit from continuing to work at the cutting edge of telco technologies. Our T22 strategy is about transforming the business and the future is about leveraging the capabilities we have built and ensuring we have the right structure in place to innovate and deliver.

“For Australia, we have a single-minded focus on creating the world-class infrastructure that will underpin the digital economy that is crucial to Australia’s economic recovery. It will create new opportunities to raise more capital to invest in that infrastructure, and a structure that lets us benchmark against best-in-class infrastructure businesses around the world. It also creates optionality for a future when the NBN is privatised and could lead to greater network efficiency and reduced duplication.

“For our shareholders, we will continue to unlock the value of the company, improve the returns from our assets, and create further optionality for the future.

“There’s no doubt the digital economy will shape our recovery, our society and our future, but it will only do so if the telecommunications platform that makes it possible is first class. What we have announced is about doing just that.”