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WSWS : News & Analysis : Australia & South Pacific

Australia: Telstra to slash 12,000 jobs

By Terry Cook
29 November 2005

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On November 15, in a six-hour briefing to market analysts and media representatives, Telstra’s chief executive Sol Trujillo announced plans for a radical restructuring of the Australian telecommunication company’s operations, including major job shedding. In all, Telstra will axe 12,000 jobs over the next five years, around 23 percent of its current workforce of 46,000. Some 8,000 jobs will be cut within the first three years.

Trujillo declared his strategy was to make Telstra “leaner” and “more efficient” by abandoning its traditional fixed-phone network, which previously provided the bulk of the company’s revenue. He declared that fixed-phone networks were “becoming redundant” in a “wireless world” and announced plans to invest heavily in new generation communications technologies “requiring fewer human resources”.

The proposal involves a $10 billion investment over the five years in fibre-optic cables and wireless broadband to provide services to the majority of Telstra customers. The changes will allow the company to cut its 334 different network platforms by 65 percent and pare back its 1,200 different business and operational support systems.

In addition, Trujillo scuttled a planned $570 million mobile network that was to be run by New Zealand subsidiary TelstraClear. An undeclared number of jobs will be cut from TelstraClear’s 1,500-strong workforce.

Put plainly, Trujillo’s strategy is to bolster Telstra’s “competitive position” by destroying the jobs of thousands of workers whose skills and labour have produced record profits for the company in the past.

Trujillo’s announcement comes just months after the Howard government rammed legislation through parliament allowing the sale of its remaining 51.8 percent holding in the company. Despite the government having a majority in both houses of parliament, the process of fully privatising the communications carrier has nonetheless been fraught with political problems.

The legislation heightened already existing tensions within the ruling Liberal-National coalition. National Party MPs are anxious about a backlash in their rural-based electorates where people rightly fear cuts to services by a privatised provider concerned only with the bottom line. Opposition to the Telstra sell off also ran high in urban centres.

Seeking to shore up his own position, Queensland National Senator Barnaby Joyce threatened to block the legislation in the Senate. However, he rapidly came into line after the Nationals stitched up a deal to divert some of the proceeds of the Telstra sale towards the maintenance and improvement of rural services.

Trujillo’s announcement that Telstra will phase out its CDMA mobile network, currently used by around 1.6 million regional and rural customers, has re-ignited concerns about its commitment to service less profitable country areas.

His promise of a “seamless” change from CDMA to third generation (3G) technology did little to overcome justified skepticism. A new poll in the Sydney Morning Herald showed that 68 percent of people oppose the Telstra sale, an increase of 4 percent since August. Significantly opposition among Coalition voters has jumped by 10 points to 54 percent.

Desperate to justify his own role, Joyce claimed the Nationals had been kept in the dark about Telstra’s plans and condemned the company as “sneaky”. National Party leader Mark Vaile declared rather incredulously: “There was no inkling that 12,000 jobs were going to go”.

It was widely known that an internal Telstra working paper outlining future restructuring had been published two months ago and handed to the government. As one commentator quipped: “Everyone knew about the job cuts except the Deputy Prime Minister Mark Vaile”.

The other factor plaguing the government’s sale of Telstra is the ongoing collapse of its share value. Even with the legislation in place, Howard is unable to set the date for a public float because the share price remains well below the $5.25 benchmark needed to realise $30 billion for the government.

The plunge in share value in recent months was in part attributable to Trujillo’s public clashes with the government. He claimed that the previous management had under-invested in infrastructure and had borrowed to pay shareholder dividends. He warned that profit margins would be down well into the future.

These public statements were designed to pressure the government to back away from regulatory provisions in the legislation that would weaken Telstra’s monopoly position. Trujillo claimed that plans to fix the price that Telstra could charge its rivals for access to its infrastructure would cost the company $850 million a year in lost revenues.

Even before Trujillo’s public campaign, Telstra’s shares had plunged from a $7.40 high at the time of the sale of the second tranche in 1999 to around $4.30. A series of disastrous investment decisions, including a high-profile joint venture with Hong Kong-based PCCW to launch mobile system CSL, contributed to the fall. In 2002 Telstra had to pay out $1.09 billion to buy out the troubled PCCW’s 40 percent interest.

Despite their previous disagreements, Trujillo and the government both hoped the announced job cuts and investment plan would bolster market confidence. Contrary to expectations, Telstra shares plunged a further 7 percent, shedding 30 cents to hit $4.02 and wiping $1.8 billion off the company’s value.

Goldman Sachs JBWere analyst Christian Guerra commented: “We struggle to see how Telstra will outperform the broader market in the short term. Long term, the market’s biggest fear is that Telstra embarks on an enormous investment program and either does not execute well—that is, not generate the cash savings—or suffers as the industry structure deteriorates further.”

Guerra described the restructure as “ambitious, necessary and courageous” but “expensive and enormously risky” and warned that returns would be “diluted” in the short term. He estimated that Telstra would spend around $26 million over five years to generate a “sub-market profit growth of 3 to 4 percent”.

Investors were also spooked by Trujillo’s cancellation of a promised special $1.5 billion dividend for 2006 and revelations that redundancy costs and asset write-offs would cut profits by up to 30 percent in the financial year ending June 2006.

There was no positive reaction to Trujillo’s plan to challenge global Internet giants Google and eBay through Telstra’s directories business Sensis. In a show of empty bravado, Trujillo attempted to shrug off the competition with the quip, “Google schmoogle”.

While Trujillo is proposing to transform Sensis into a “$3 billion a year online powerhouse”, its rivals are turning up the heat. Google, as well as Yahoo and Microsoft’s MSN, have plans to compete with online “local” search services where directory companies such as Sensis previously enjoyed a monopoly.

Reflecting market demands for further cost cutting, ABN Amro banking analyst Ian Martin declared there would need to be “more pain” at Telstra before any gains emerged to convince investors. In other words, many more jobs will have to go.

The government’s response to Telstra’s job cuts was entirely cynical. Howard declared that he “never liked to hear of job losses,” but insisted Telstra had the right to decide its staffing levels. Downplaying the problems facing laid-off workers, Howard claimed “job prospects” were “greater now than they would have been 10 or 12 years ago”.

Howard’s claim of a booming jobs’ market is a fraud. The majority of jobs created over the last decade have been casual or part-time with inferior pay and working conditions. Tens of thousands of workers previously sacked by Telstra have joined contract companies or become self-employed. Many do the same work they once did for Telstra but for far less pay.

The Howard government is currently pushing through new industrial relations legislation that will allow employers to drastically slash wages and eliminate a raft of key working conditions. This is the real jobs’ market onto which sacked Telstra workers will be tossed.

The reaction of the Labor Party and the trade unions is no less cynical. Labor Opposition Leader Kim Beazley warned the job cuts “were a taste of things to come” while communications spokesman Stephen Conroy appealed to the government to “call off the privatisation”. Community and Public Sector Union assistant national secretary Stephen Jones declared: “If this is the price of privatisation, then the price is too high.”

It was, however, a Labor government, with the direct assistance of the unions, which oversaw the destruction of many thousands of Telstra jobs in the late 1980s and early 1990s. The latest round of job cuts will bring the number shed over the past 10 years to around 63,000. One of Trujillo’s predecessors—Frank Blount, a Labor government appointee—axed 40,000 jobs in his seven years at the helm, four of which were under Labor.

While the Labor Party now postures as an opponent of the Telstra privatisation, it prepared the way. In fact, Labor discussed the sale of Telstra with leading corporate representatives just prior to the 1996 federal elections when Beazley was then communications minister. Labor had already privatised Qantas, the Commonwealth Bank and the Commonwealth Serum Laboratories.

No one should place any faith in the unions or any of the parliamentary parties to defend jobs and ensure the availability of high quality telecommunications services for all. These objectives can only be achieved through a concerted struggle for socialist policies and the restructuring of society to put the needs of ordinary working people ahead of corporate profit.

See Also:
Australian government rams through Telstra privatisation
[27 September 2005]
Telstra sale—a political minefield for the Australian government
[6 September 2005]