Telstra says cutting almost a tenth of its workforce will save $350 million. Why is business under pressure?

Telstra on Tuesday announced as part of a thorough restructuring, it will lay off as much as 2,800 employees.

Of these waivers, 377 will take effect immediately Telstra Company Business unit. Most of the remaining cuts will be announced intimately soon and finalized by the top of the yr.

The announcement got here after: review from the corporate’s enterprise division, which serves large business and government clients.

Providing voice calls and other network services to those customers has been a crucial part of Telstra’s business up to now. Recently, nevertheless, low-cost competition using the Internet has begun to erode these revenues.

Speaking on the press conference, Telstra CEO Vicki Brady said that while the corporate continues to see solid growth in its mobile network, it now faces a changing business landscape:

Our industry and the world wherein we operate are changing. We have latest and different competitors. We are coping with rapid technological progress. Our customers’ needs are consistently evolving, and we experience constant inflation and price pressures.

However, it is possible that these layoffs are also part of a technique to boost Telstra’s falling share price, which fell to a low of A$3.57 on the day of the announcement.

The figure is down from a 52-week high of $4.46 and well below a ten-year high of $6.61 in February 2015.

How did we get here?

Telstra in February reported a decrease of 66.7%. EBITDA – a crucial measure of profits – for a longtime business unit.

Telstra said this decline was the result of a continued decline in revenue from call charges, business connectivity, applications and network services.

It is possible that the slowdown within the Australian economy has exacerbated this decline, impacting business spending on telecommunications services.

Telstra was under pressure to search out savings as part of an ambitious ‘T25” goal to realize net cost reductions of $500 million by the top of fiscal yr 2024-25.

Telstra expects this major restructuring to lead to a one-off cost of between $200 million and $250 million over this era.

The company also announced that it will deal with reducing other cost categories, including non-labor costs. One such cost is energy consumption, a a major expense for telecommunications operators.

The company currently expects to realize its $350 million cost reduction goal by 2025.

Telstra has circuitously linked the newest round of cuts to the broader adoption of artificial intelligence (AI). However, the corporate is exploring ways to make use of this technology.

In February, Telstra announced it was continuing to work on artificial intelligence technologies it had developed in-house pilot trials with team members from the front line.

The company was careful to emphasise that these particular technologies are intended to support existing staff, for instance by summarizing customer interactions or higher retrieving information from internal databases.

However, in the longer term, continued adoption of AI could ultimately impact workforce numbers as Telstra and other telecommunications firms look to expand and capitalize on cost-cutting applications of the technology.

Mobile tells a stronger story

Meanwhile, Telstra’s core mobile business performed well, with subscriber numbers growing steadily over the past yr.

The company’s latest announcement included, amongst others: significant change with the terms of mobile subscription plans.

The prices of these plans were routinely indexed to the Consumer Price Index each fiscal yr. This will not be the case, bringing postpaid plans on par with most other Telstra products. There will be no increase in July.

Brady said the move would give the corporate more flexibility:

This approach reflects the range of aspects that influence each pricing decision and will provide greater flexibility to regulate pricing at different times and across different plans based on value propositions and customer needs.

This change means consumers may feel relief from large automatic price increases when the buyer price index is high.

However, this is more likely to cause concern amongst consumer groups. There will now be no certainty as to the precise timing of price changes for postpaid mobile plans, and the dimensions and direction of any changes will largely rely upon Telstra.

Telstra’s future direction stays unclear

There are other pressures on Telstra.

Before the subsequent elections, the federal government is to announce the outcomes, amongst others: review to the Universal Service Obligation (USO), a consumer protection that guarantees Australians “reasonable access to landline and payphone services”.

Telstra is Australia’s designated universal service provider and this supply agreement is a key think about ensuring its dominant position in regional and distant areas. However, there is no guarantee that it will be renewed with Telstra in 2032.

Telstra says the restructuring is intended to place the corporate in higher financial health. However, the announcement doesn’t provide clear guidance on how Telstra plans to grow its business in the approaching years.

Telstra faces increasing competition in a maturing market, and its growth appears to be based totally on expanding its customer base slightly than introducing latest services.

In the short term, Telstra continues to look to chop costs amid what it calls “higher-than-expected inflation” and high energy costs.