Telstra to face challenges in broadening its business: analyst

Analyst John Brand said Telstra might find itself in a more challenging market now that some of its “easy wins” are over

Analyst John Brand said Telstra may find it challenging to broaden its business in the future, despite strong financial results from the telco on Thursday.

Brand, who is vice president and principal analyst at Forrester Research, said the telco’s strong results, particularly from its Network Application and Services (NAS) division, was a surprise.

“We know they’ve had some good successes with large wins, but the results are actually still a little bit surprising, so I think there are some numbers in there which if you broke them down.….would reveal some different perspectives on the business,” he said.

“Overall, I think they’re obviously positive numbers and the question really is more about how they can make the transition into the network application services space on a broader scale.”

During FY2013, Telstra’s NAS division reported a 17.7 per cent increase in revenue to $1.5 billion. Its combined connectivity and NAS revenue rose 11.4 per cent to $566 million in its international business division. The telco plans to continue to build its NAS division, particularly in Asia.

Key contracts signed during the period include a $1.1 billion deal in April with the Department of Defence to provide unified comms, video conferencing and mobile device usage - its largest to date.

Brand said while Telstra might be able to strike “some good deals” in the next 12 to 18 months, in five years’ time it might find itself in a more challenging market now that some of its “easy wins” are over.

“Trying to convince the broader market that you are an enterprise computing player as opposed to an enterprise telephony player is a big challenge,” Brand said.

David Thodey, CEO at Telstra, told journalists yesterday that the company needs to keep discovering new growth areas. For Telstra, this includes building software capability and e-health initiatives.

“So we’re trying to really build out our capabilities in those areas, so [we] become more a service as an enabler and application company in the future,” Thodey said. “Someone said that software kills everything. Software is the future of our industry.”

But Brand said becoming a bigger player in the software market could be challenging for Telstra – and expensive.

“It’s very difficult to become a software player if that’s not your core competency. Telstra as an organisation has a long history of some very major troubled software projects, not necessarily all of its own doing,” he said.

“[The] way that technology has changed over the last 10 to 15 years, in particular, [means] it’s becoming harder to become a specialist in all of those different areas of software.”

Brand suggested that Telstra might be forced to partner with existing software players in order to make the company “appear more like a software vendor”.

But he said this could be challenging because it would mean the telco would be relying on third-party relationships.

“I’ve not seen enough evidence yet to say that they’re going to be a global leading telco because of their software. If I look at guys like Singtel in Singapore …. [it] has a very aggressive vision for what they want a telco to be in the future and it is very much software dependent,” he said.

“The challenge, even for them, is with all the resources they have to throw at the problem and all of the ability to align skills and resources … it’s still been a hell of a ride for those guys.

“If they’re struggling to do it, I’d imagine there’s very little chance Telstra’s going to beat them to the game … so I don’t see any major move there in the next certainly five, possibly 10 years.”

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