Energized with a new CEO, Australia’s Telstra continues to assert itself as a global enterprise service provider. Both global and national acquisitions are boosting its ICT skills and physical assets. Telstra’s new leader, Andy Penn, is willing to rip up traditional telco strategy, seeking growth in cloud and IoT services, using a range of partners. Ultimately, timing is all: As multinational spending devolves regionally, Telstra may well prove a refreshing alternative.
On paper, Penn has the experience to make Telstra a world-class service provider
Australia is often called the “Lucky Country,” and from a digital transformation perspective, the nickname is well deserved. With former communications minister Malcolm Turnbull now leading the government, Australia can claim the world’s most digital-savvy prime minister. This fact is likely to draw even more attention to Australia as a technology trendsetter and therefore to Telstra and its ambitious new leader.
Andy Penn became CEO in May 2015 and spoke at Telstra’s Vantage event in Melbourne in late September. To a mixed crowd of Telstra customers, partners, company executives, and industry analysts, Penn revealed how he wanted to develop Telstra’s world-class assets to make it a true world-class service provider operating on a global level. Penn has several years of running multinational organizations under his belt and should have the right experience to see this ambition through. He’s already outlined a strategy focusing on revenue growth versus margin defense – something that many telecoms CEOs lack the courage to execute. He said he’s willing to work more proactively with partners to get the job done, highlighting the importance of innovative startups, particularly in the burgeoning Internet of Things.
Telstra can call its technology infrastructure “world class,” but other facets of its operations, including customer service, need work. Telstra’s push into Asia is new and untested: Its acquisition of Pacnet, Asia’s largest private owner of submarine cables, only closed in April 2015. But the Singapore and Hong Kong-based service provider should boost Telstra’s international credibility and market visibility. As well as its extended network and data center assets, Pacnet brings an 800-strong team to support multinational customers. It also possesses expertise in network functions virtualization and software-defined networking, complementing Telstra’s own expertise in these areas. Moreover, Pacnet comes with 1,000 live enterprise accounts – some of which Telstra previously tried to capture.
Several Telstra enterprise customers that Ovum has interviewed believe that Telstra is improving its ability to cater for complex ICT needs, both nationally and internationally. Key investment areas are in consultative selling, integration skills, managed security, and cloud services (the latter a strategy introduced four years ago). The fact that many of Telstra’s original cloud customers are looking to extend their relationship beyond Australia to China, North America, and Europe is a strong sign of trust.
Telstra’s approach to its partner ecosystem is maturing: There’s growing evidence of a multipronged engagement strategy that includes a more diverse range of partners. The traditional big-end partners still exist and continue to offer growth opportunities, but Telstra has shifted toward solution-specific pure-play providers such as Palo Alto and Pivotal. This 700-strong partner group is becoming an increasingly important component of the Telstra go-to-market strategy. Telstra wants to become the glue that holds this diverse group together to deliver value and performance to its customer base.
The Pacnet assets should make Telstra more interesting for North American and European MNCs with Asia-Pacific ICT needs. However, Telstra needs to pick up momentum lost to various service providers such as Tata Communications and Singtel – and even China Telecom as an alternative regional-to-global service provider. This will be a tough task until Telstra gains more big-name “marquee” customers.
Nevertheless, Telstra is investing in top-end customer management, with more resources dedicated to servicing its biggest enterprise customers. Telstra hopes that its top 20 biggest customers provide strong “referenceability” considering the diverse range of industries that they represent (even if their geographic spread is relatively limited).
But hot-housing large customers can have its downsides, as other service providers consolidating around their key accounts have found. Ovum contract analysis suggests that this strategy results in the service provider’s revenue pipeline filling up with extensions and renewals, rather than new business and new logos. The top end of the MNC market is a defensive environment in which incumbent service providers continue to give ever more to big accounts. For established service providers, let alone newcomers, it is very difficult and expensive to convince such enterprise accounts to switch providers.
Historically, regional service provider strategies have proven difficult to execute. However, Ovum has observed a longer term trend that may play into Telstra’s favor: Major multinationals are starting to “uncouple” and decentralize into regional operations. This results in a more regionalized ICT budget, fundamentally changing market dynamics.
The state of affairs doesn’t faze Telstra executives, who say that they smell opportunity in other market segments. One area is mid-market accounts, many of which have more modest international support needs. Ovum is tracking a rising wave of mid-size enterprises in emerging countries signing their first international managed-services contracts. Telstra’s often overlooked partnership with Telkom Indonesia – incumbent in the world’s fourth most populous nation – could bear considerable fruit.
Enterprise Insights: Evaluating Suppliers in Global Managed Services, TE0005-000695 (April 2015)
Telstra: Strengthening its Asia-Pacific Strategy with Pacnet Acquisition, TE0005-000682 (January 2015)
Global Services Deals Analysis 1H14: Regional Shakedown, TE0005-000680 (January 2015)
Camille Mendler, Lead Analyst, Enterprise Services
David Molony, Principal Analyst, Enterprise Services
Jens Butler, Principal Analyst, IT Services
Nicole McCormick, Principal Analyst, Service Provider and Markets
Adrian Ho, Principal Analyst, Enterprise Services