Telstra job cuts ‘bold, necessary’

TELSTRA’S job purge has been criticised but an analyst says the telco’s shock move to slash 8000 jobs is needed to bring labour costs down.

Morningstar analyst Brian Han commended Telstra’s focus on cost cuts and efficiency gains totalling $2.5 billion by 2022, calling the move “bold but necessary”.

Mr Han also pointed to its pledge to simplify what he termed a “Byzantine mess of legacy systems and processes” and required “excess people” to manage them.

“It is little wonder two to four layers of management will be eliminated, resulting in 8000 job losses — a cut that will merely bring Telstra’s labour costs/income to global top-quartile level of 13 per cent, from the current 18 per cent,” Mr Han said.

The Communications Workers Union, which represents Telstra workers, has slammed the purge — which it says is the largest in Australian corporate history — as unacceptable.

The union said the cuts would impact Telstra’s ability to serve clients, particularly in regional areas, and accused the telco of putting profits ahead of service.

“It also sends a terrible message more broadly that workers in a hi-tech, digital business like Telstra can be thrown on the scrapheap so easily,” the union said yesterday.

The drastic plan outlined at a strategy briefing in Sydney on Wednesday was prompted by increasing competition with the imminent mobile entry of TPG Telecom, Mr Han said.

Morningstar has maintained its $4.40 fair value estimate for Telstra on the basis the changes will create a more organised and efficient company but Mr Han said the low share price was a sign of “palpable” market scepticism about its ability to execute its competition strategy.

“What Telstra cannot control is the competitive environment,” he said.

As part of its restructure, Telstra will also set up a standalone $11 billion unit, dubbed InfraCo, that will house fixed infrastructure assets except those for domestic mobile, and may be a future spin-off or partly sold.

Mr Han said there were no compelling reasons for the split, which created the risk of a distraction for management.