"Mission accomplished" on IT transformation, says Telstra

Stuart Corner
Monday, 02 November 2009 09:11

IT Industry - Strategy

According to Stanhope, "Of the $1.5 billion increase in the IT spend in IT transformation only $200 million relates to added complexity. $400 million relates to a business decision to capitalise business infrastructure and the balance relates to scope changes that we brought in deliberately into this transformation programme." He said, originally BigPond had not been including in plans to transform Telstra's billing system and had been added subsequent to the original budget being drawn up."

He said spending on the Next G network had been greater than budgeted adding "Remember, wireless is now 99 percent [population coverage], back then we were talking about 96 [percent]," and that Telstra had spent less than expected on wireline network fixes and platform rationalisation.

And Stanhope had more good news for the analysts. Not only had Telstra delivered a five year, multi-faceted $12b transformation project to within two percent of budget, but returns on the $3.9b (60 percent above initial estimates) IT transformation budget were "the sorts of numbers you would be looking for to get [for] your return on investment... around $300 million of benefits, revenue and costs savings, this financial year. Around $800 million in 2011, again a mix of revenue and costs savings, and in excess of $1 billion in 2012."

It all sounded very neat and tidy, but one analyst remains sceptical. Daniel Blair of Southern Cross Equities, in a note to clients just after the investor day, observed: "Telstra were at pains to point out the entire transformation programme (including IT programme) is now 'basically complete'... [But] with on million customers still to migrate, this is not 100 percent accurate."

And topping his list of "downside risks" to his valuation was "Execution of its transformation objectives: of particular relevance is delays both to the delivery and benefits of the IT transformation."

Nevertheless, Blair is re-iterated his buy recommendation, saying: "Telstra represents compelling value at the current share-price [$3.29] We believe there is downside protection at these levels." He has a price target of $4.03 within 12 months.