Telstra Makes the Wrong Call?

Telstra makes the wrong call? Case Analysis

Case Analysis: Telstra Makes The Wrong Call?

Telstra competes in one of the most capital-intensive industries there are, one marked by relatively low Return on Invested Capital (ROIC) levels, relatively high costs of customer acquisition and churn, and millions of dollars invested in infrastructure. These factors, combined with continual and growing influence of government regulation at a direct level and the long-term ramifications of legal/political factors strategically are requiring Telstra to fundamentally redefine their business model and organization (Kim, Park, 2006). During the time period of the case analysis, the Australian government believed that government intervention in the form of privatization of telecommunications led to more competitiveness in capital-intensive industries, which the break-up of Telstra being an adjunct aspect of a privatization strategy (Chu, 2001). As intensive levels of government regulation has shown, industries tend to become less agile and lose the ability to quickly innovate driven by customer's preferences (Easton, Howard, 2005). Telstra is at a crossroads that is critical to their future in this case analysis, with the option of doing nothing being the worst decision of all.

2.0

Issue Identification

Telstra is well-positioned to continually invest in operations based on the $14B raised through the sale of public equity. Yet its decisions of how best to invest the $14B since the late 1990s have been seen as predatory and potentially setting the foundation for monopolistic competitive strategies vs. Optus (Easton, Howard, 2005). Exacerbating this strategic issue is the fact that Telstra is failing or at the very least falling short of serving its 9.2 million fixed-line services customers, 9.7 million mobile services customers, and 5.2M mobile Internet customers. Telstra was beginning to become the symbol of a deteriorating economy that relied too much on monopolistic strategies to the exclusion more innovative, insightful and intelligence growth strategies (Kim, Park, 2006).

3.0

Critical Discussion

The Australian governments' reliance on a combination of privatization and deregulation have in the past proven to be effective in enabling greater economic growth. Telecommunications has historically been a bureaucratic, public-service organization within the country and one that has been paradoxically in its potential as a growth catalyst for the country's economy (Chu, 2001). Telstra's current strategic dilemmas as defined in the case analysis are emerging in a national environment that is heavily influenced by these historical factors. And that is not a favorable climate for Telstra to maintain its freedom to operate how it chooses to; its independence and sovereignty is in question as its very business model.

Having begun as a classically bureaucratic, public-service organization, Telstra's organizational structure is going to be very difficult to change. Yet to placate and create a productive collaborative working relationship with government regulators, Telstra needs to consider a decentralized organizational structure. The proposed structure needs to move beyond simply defining and creating functional boundaries between departments; it must re-align the company to concentrate on how Telstra can be better aligned to disruptive innovations occurring in mobility, cloud computing, device convergence including the use of tablets for consuming streaming video content. It can be inferred from the case that the Australian government is considering moving towards a decentralized structure for Telstra given the claims of its monopolistic competition vs. Optus, and the lack of effective investments to support and service fixed-line, mobile services and mobile Internet customers. Telstra must take the initiative to create a decentralized organizational structure to avert the government taking action. Redefining the organizational structure of Telstra to better align with disruptive factors occurring in mobile will further increase the potential of long-term profitable growth as well.