How Telstra Became Australia's Telecommunications Giant

How Telstra Became Australia's Telecommunications Giant

Telstra is Australia’s top telecommunications provider, and it’s featured in the 20 biggest telecommunications companies in the world. Let’s take a closer look at Telstra’s amazing journey.

Telstra is Australia’s top telecommunications provider, and it’s featured in the 20 biggest telecommunications companies in the world. That’s not all. It is also the largest and fastest mobile network force powering Australia, aspiring to become Australia's No.1 content solutions provider.

With over a century’s worth of illustrious business history and acumen, Telstra is more than ready to revolutionize the digital technology industry by making sure consumers all across Australia (and the world) remain connected via the best information and telecommunications services.

Here are a few key stats that highlight Telstra’s leading position as the ultimate telecommunications service provider:

The top-notch quality of Telstra products and services has not only allowed it to establish a presence at home, but it has also ensured that it can expand around the globe from Asia and Africa to Europe and America.

Let’s dive deep into the history of this amazing company and unlock the key insights into what it takes to make it big in the corporate world.

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Let’s Go Down Memory Lane

Telstra was originally established as a public company in 1901 under the state-run Postmaster-General's Department (PGD). 

Initially, it was responsible for all telephone, telegraph, and postal services in Australia. Over the years, the Postmaster-General's Department was dissolved into separate entities such as Telecom and the Overseas Telecommunications Corporation Limited.

It was only in 1993 that all these telecommunication entities were merged into the firm we know today as Telstra.

The Initial Period: 1901-1936

During the early 20th century, the corporation was run by the PGD, and it was the central authority for telecommunications services in Australia.

By 1907, telephone lines were laid down between two of Australia’s largest cities: Sydney and Melbourne. This was a ground-breaking initiative by the corporation which made inter-city calls possible for the first time in the country’s history.

By the early 1920s, most of the cities had been connected through telephone lines.

australian-phone-service-room-1900sSource

In 1925, the corporation developed an innovative solution that allowed more than one call to be transmitted through a single line. It helped improve the overall service considerably and delighted the customers.

phone-line-crossover-connection-1930sSource

Another key breakthrough came in 1936 when the company successfully built an underwater cable that connected the mainland with the island of Tasmania. 

As a result, the islands were also incorporated into the corporation’s vast telephone network for the very first time, enhancing the company’s reach while giving customers more freedom and choice.

The 1940s: Australia Connects With The World

With most of Australia’s territories now connected through telephone lines, the company set its eyes towards connecting Australia with the rest of the world. In 1946, the government decided to create a separate entity to oversee international communications that would still operate under the larger umbrella of the PGD.

Following this decision, the Overseas Telecommunications Commission (OTC) was launched to provide telecommunications services between Australia and other countries. The following year, the OTC started experimenting with new teletype equipment to connect Sydney with San Francisco.

In the same year, tests were conducted to develop a new system that would allow radio-telephonic communications between the mainland and ships at sea. Then in 1948, a special radio telephone service was set up that connected scientists in Australia with their counterparts in Antarctica.

overseas-phone-communication-center-1940sSource

It is pertinent to pause here and consider the fact that the OTC was established right after WWII ended; at a time when both facilities and profits were depleted. Yet, the OTC managed to achieve impressive results right from the start by connecting Australia to other international cities and to the ships at sea.

These were not at all easy tasks, but the OTC managed to deliver exceptional results by focusing on long-term planning and iteratively improving. It heavily invested in experimental new technologies and expanded its submarine cable network. As a result, it was able to connect Australia to the world.

But the OTC did not stop there. In 1949, it introduced a new service called an Aerogram, which connected coastal radio stations in Australia with airlines flying on the Sydney-UK route.

New Innovations Taking Australia To The Moon: 1956-1969

Following its policy of innovation, the OTC and the PGD continued to invest in new technology to upgrade their services. By 1956, the OTC linked Australia with the first co-axial telephone cable which provided a trans-Atlantic telephone service.

However, it was actually the 1956 Melbourne Olympics that would prove to be the catalyst for both the OTC and the PGD. Hosting the Olympics meant that Australia would have to come up with a way to smoothly handle the increased flow of both international telephone calls as well as telegrams.

The corporation proved more than capable of dealing with this new challenge. It introduced a new technology called the Teleprinter Reperforator Exchange Switching System (TRESS) which was fully automatic and equipped to handle the increased flow of telecommunications traffic into Australia.

coaxial-cables-installation-1950sSource

The corporation’s journey of innovation did not stop there but continued well into the 1960s. With the introduction of coaxial cables in 1964, thousands of calls and TV transmissions were made throughout the country.

By 1969, the corporation had incorporated satellite broadcasts into its range of services, and it allowed Australian viewers to witness the historic moon landing. The same year, the OTC made history by making Australia the first country to use satellite systems for cross-country telephone communications.

Key Takeaway 1: Think Big; Have Long-term Goals!

Telstra’s initial journey shows that the corporation prioritized long-term planning right from the very beginning, and that set up the company for success. It invested heavily at a time when resources were scarce and didn’t restrict itself to survival but rather focused on thriving.

The company knew that the telecommunications sector had growth potential, and hence, it doubled down on investing in it. It was able to expand its network and connect Australian cities both domestically and internationally.

Telecom- The Precursor To The Telstra Of Today

The 1970s marked the dawn of a new era in Australian telecommunications. Until then, a single state-owned entity had managed both postal and telecommunications services. 

However, times were changing, and the increasing worldwide competition in the telecommunications market made it imperative for the government to establish a separate company for telecommunication services alone.

This decision was taken to keep Australia at the forefront of cutting-edge innovations in the telecommunications sector by enhancing the country’s ability to invest in microchips and satellite technology.

The 1970s: Emergence of Telecom

In July 1975, the Postmaster-General's Department was dissolved into two separate entities; one for postal services and the other for telecommunications. 

The Australian Telecommunications Commission or Telecom was made responsible for domestic telecommunications, although it still remained largely under government supervision.

The government gave it a monopoly over the telephone network infrastructure and put it in charge of supplying and maintaining telecommunication services all across Australia. The international telecommunications services, on the other hand, remained under the OTC.

Right from the start, Telecom faced some major issues. Firstly, under the PGD, the company had been unable to make a profit for many years. This was by far the biggest issue. So, Telecom was required to come up with a strategy to ensure profitability.

The second major challenge was service provision in rural areas. Telecom needed to come up with a plan to make its services accessible across thousands of miles of rural countryside that regularly faced power cuts. It also needed to successfully market itself to indigenous communities and immigrant populations whose first language was not English.

Lastly, Telecom was tasked with upgrading its existing services to better meet the needs of Australia’s business sector. All these issues provided a formidable challenge for the newly formed company, but Telecom powered through to deliver the desired results.

Telecom was able to generate a decent profit within its very first year and continued to remain highly profitable in subsequent years as well. It also introduced international direct dialing for the very first time in Australia.

This initiative was so successful that by 1976, Telecom was able to provide international direct dialing to more than 13 countries.

The 1980s: Telecom Introduces Mobile Phones

By the year 1980, international direct dialing was so popular that Telecom posted a whopping 800 percent increase in the demand for this particular service. This was also the year in which Telecom first marketed a game-changing new product: the mobile phone

The mobile phones were initially sold as car phones, and they could store up to 16 different telephone numbers which was quite revolutionary at the time. Telstra or Telecom, as it was called back then, not only sold the phones but also installed them into the car for the customer, elevating the customer experience.

telstra-car-phone-1980sSource

By 1983 Australia had one of the highest telephones usage rates courtesy of the excellent service provided by Telecom.

To tackle the second major challenge - service provision in the Australian outback - Telecom launched a 'Rural and Remote Areas Programme' in 1984 that aimed to provide telecommunications services in far-flung corners of the country. To further incentivize telephone usage and improve profitability, the company even offered a special pastoral discount to its rural customers.

The Late 80s: Telecom Makes Good On Its Promises

In 1989, the Commission renamed itself the Australian Telecommunications Corporation while still trading as Telecom Australia. By this time the ATC had managed to successfully tackle most of the challenges that had been identified in the early 1970s when the company first became operational.

The biggest challenge had been profitability, and Telecom overcame this challenge successfully. By the late 80s, the company was profitable and valued at $24 billion. It had also single-handedly pumped almost $2.5 billion into the national economy and invested heavily in research and development. 

Mobile public pay-phones and business telephone systems were two of the major contributions that came out of the ATC in the late 80s. Its 'Rural and Remote Areas Programme' was also starting to take off. By 1990, the program had managed to connect almost 50,000 rural residents to the national telephone network. 

To ensure uninterrupted service delivery in the outback where electricity outages were common, the ATC thought outside the box and decided to use solar and wind power instead of relying on the unstable electric grid.

This initiative by Telecom showed that the company could tackle challenges head-on and think of innovative ways to overcome obstacles to reach citizens even in remote areas. It also highlighted the fact that the corporation was committed to being environmentally conscious right from the beginning. In fact, the company regularly recycled unused cables and made a genuine effort to avoid using substances that were damaging the ozone layer.

The company also delivered on its promise to reach out to indigenous and immigrant communities in Australia by introducing the post of ‘Ethnic Community Relations Officer.’ 

These individuals would act as bridges between Telecom and the indigenous and immigrant communities, helping the company improve service delivery to these people, many of whom did not speak English.

Key Takeaway 2: Fill Gaps With Innovative Solutions

The company made a point of identifying key challenges in service provision and product development and solve them. When faced with obstacles, the company let go of traditional methods and thought outside the box to resolve issues in service provision.

It also took it upon itself to diversify its customer base by reaching out to other communities in Australia. Thus, a key part of its success was in its continued investments in technology to provide new products and services as well as improving the existing ones.

As a result, from being unable to turn a profit, the company went on to become a major contributor to the growth of Australia’s domestic economy.

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From A Public company To A Private Corporation

As the 90s approached, the company went through some major upheavals. New challenges emerged, chief among which was the deregulation of the telecommunications industry following an act of parliament.

Following calls for privatization by the business sector, the government gradually traded state-owned shares on the stock exchange and opened them for investors. The privatization was done in stages from 1997-2006. 

This was a huge structural change for the corporation - there’s no doubt about that. But Telstra wasn’t the one to sit idle. It came up with aggressive plans to adapt to the changing circumstances.

New Challenges, New Rivals 

After the deregulation of the telecommunications sector in 1991, more firms were allowed to enter the industry, and for the very first time, the state-run Telecom would have to compete with other companies. The very first rival that appeared on the scene was Optus.

In 1992, the OTC and the ATC (Telecom) merged to form the Australian and Overseas Telecommunications Corporation. At the time, the corporation was generating a profit of $1.6 billion, and its global network was present in over 185 countries.

The company was competing with rival Optus over national long distance and international telephone service market share. Hence, it no longer had a monopoly in this area.

CEO Frank Blount was appointed in the same year. He knew that the corporation was moving towards privatization and would have to compete intensely with its rivals. 

To keep Telecom profitable, he decided to further pursue global expansion to gain a competitive edge. It already had a strong footing in countries like the Philippines, but it aimed to take its presence as far as China.

In the midst of this situation, Telstra was born in 1993 when Telecom Australia changed its legal name to Telstra Corporation Limited. As Telstra, the company faced yet more competition from rival Optus in the cable network market. 

However, the company took the challenges head-on and innovated. When Optus came up with its own cable network in 1994, Telstra responded by launching its own venture called Foxtel. 

Not only did Telstra improve its high-bandwidth network, but it also provided its customers with pay-television services along with regular cable television.

However, the company would face a major setback in 1995 when the government further cut down on Telstra’s monopoly to create more competition. The government allowed rival companies access to the local copper loop owned by Telstra so that they could also compete with Telstra in providing high-speed Internet access, data, and pay-television services to customers.

The company responded to these challenges by investing heavily in infrastructure and spend $200 billion to improve its services. 

In 1996, Telstra started outsourcing to other firms and cutting down on staff to adapt to a deregulated market and increasing competition from rivals. The company also innovated continuously, and in the same year, it launched BigPond to provide high-speed internet to consumers. 

The Privatization Of Telstra

In 1997, the privatization of Telstra formally started. The government sold one-third of its shares on the stock exchange to investors. The shares sold for $14 billion, and the company was listed on the Australian Stock Exchange for the first time in its history.

In 1999, CEO Ziggy Switkowski was appointed to take over after Blount stepped down. To adapt to the privatization of the company and its emerging rivals, Telstra further improved its service provision. 

Under Switkowski’s lead, the company launched its Code Division Multiple Access (CDMA) network. This network greatly boosted service provision in far-flung rural areas.

The same year, the government sold another 16% of its shares in the company on the stock exchange.

Responding to these changes, the company changed its corporate culture to better cater to its customers. In 2000, the company introduced a fiber-optic network to double the capacity of its internet network. For the 2000 Olympic Games, it expanded its fiber-optic network so that it could handle 300,000 mobile phones and 280 video links.

CEO Switkowski also expanded on the BigPond service and introduced BigPond Movies and BigPond Music in 2004.In 2005, Sol Trujillo took over the reins from Switkowski. The following year, the government sold the remainder of its shares in the company for $15.5 billion dollars. 

Right from the start, Trujillo had to contend with some major issues. Telstra’s share price had underperformed under Switkowski. Furthermore, the company was facing a lot of competition from its rivals in the fixed-line business.

To turn around the fate of the company, Trujillo came up with an impressive plan of action. He phased out the old CDMA network and brought in a nationwide 3G, 850 MHz mobile Internet in 2006. This new network proved wildly successful and was the fastest network being used in the world at that time. It doubled Telstra’s capacity to handle data traffic and proved that Telstra could outpace its competition as a private corporation without state backing.

Key Takeaway 3: Adapt To Changing Circumstances 

Despite facing stiff competition and undergoing privatization, Telstra proved that it could remain profitable and serve its customers. This stemmed from the company’s ability to continuously evolve. 

Telstra made sure that its competition was never able to outdo it by heavily investing in infrastructure and new services and updating its old networks over the years, becoming one of the fastest service providers in the world.

Winning Back Market Share

By now, Telstra had established itself as a private corporation, but there was still a long way to go for the company. It was still facing issues such as a dip in its market share price. To combat this, the company put in motion an ambitious new plan to win back market share.

Strategizing Aggressively To Win Back Market Shares

David Thodey was the first person to serve as CEO once Telstra was fully privatized. A graduate of the prestigious Northwestern University, Thodey was appointed CEO of Telstra in 2009 at a time when the company’s share price was plunging.

Under his leadership, Telstra would go on to reach new heights. In 2010, Thodey put aside $1 billion dollars just to recover market share by focusing on improving Telstra products. Within a year, Telstra was boasting more than average sales. In fact, in his six-year tenure, Thodey managed to double Telstra’s market value from $40 billion to $80 billion. 

In 2013, Telstra introduced the option to pay bills via PayPal. Aiming to conduct 75% of its transactions online using its brand new Digital First program, the company saved up to $3 million in operating costs.

In October 2013, the company launched its low-cost broadband service called “Belong”. This program provided both mobile and internet services to customers. Belong was also the first carbon-neutral telecommunications provider in the whole country. 

Furthermore, David Thodey believed that a constant improvement in service provision was crucial in taking Telstra forward. His efforts reaped multifold returns; by 2015, nearly 95% of the population were Telstra customers who exclusively used the company’s 4G network.

Branching Out Into New Ventures

In 2011, Telstra announced plans to set up 100 new retail stores. These stores sell accessories, digital tickets, and other products. According to Thodey, 100,000 people visit these shops in a single day.

In 2014, Telstra decided to sell off Sensis, the company it had acquired back in 2008. Sensis was the advertising and directory service branch of Telstra, but Thodey decided it was time to sell off Telstra’s stake as the company was falling behind its competition.

Thodey also had his eyes on the emerging markets in Asia where Telstra already had a presence, such as China, India, Indonesia, and Japan. By investing more than $1 billion in creating partnerships in Asia, Thodey aimed to generate more than one-third of Telstra’s revenue from the continent alone.

In 2013, Thodey took Telstra into a new direction by acquiring health businesses and other related ventures. The company acquired almost 13 different new health business units in the period 2013-2015. The company was set to become the biggest provider of e-health solutions.

Telstra collaborated with these new health units to help patients connect with doctors online and receive e-prescriptions. It also facilitates the health units in remotely monitoring a patient’s health once that patient has checked out of the hospital.

Telstra branched out into the e-health sector because it could see a growing trend in health spending in the country due to the increase in chronic illnesses. In 2015, Telstra predicted that health spending in Australia would hit the $200 billion mark by 2020.

In 2014, Thodey finalized a deal with the Australian government worth $11 billion to hand over the firm’s copper and hybrid fiber-coaxial (HFC) networks to NBN. This was a strategic move by Thodey because he realized that copper networks were a thing of the past. 

The new plan involves replacing the outdated copper wires with an optic fiber network to provide more reliable internet service to customers.

Key Takeaway 4: Strong Leadership & Proactive Approach Essential For Growth

Telstra, under strong leadership, took a proactive approach to stay on top of market trends. Thodey helped successfully salvage Telstra’s market share in his six years as CEO. Under his watch, Telstra saw a 120% appreciation in its share price.

From prioritizing service provision to conducting extensive market research to analyze the future needs of the Australian market and investing in new ventures such as health acquisitions, Telstra embraced new ways of winning back market share, and they worked.

Telstra became Australia’s third most valuable company in 2013, and in 2016, it went on to become Australia’s number one most valuable company.

Telstra2022

Venturing into other industries and recording huge profits, Telstra was well on track to continue its successful run for several years to come. However, things took a turn for the worse, and the company found itself in deep waters with a need for swift action to survive or else go under.

Failed Collaboration, Network Outages, and Plunging Profits

Andrew Penn took over from Thodey as Telstra's CEO in 2015. Prompted by the company's recent success, Penn was ambitious to see it expand further in international markets.

One such venture where the company planned to invest its resources was a collaboration with Philippine-based conglomerate San Miguel Corporation in 2016 to develop a new mobile network in the Philippines. However, the expedition didn't go as planned, and talks between the companies ended soon after they began.

This was only the start of a series of setbacks. Later the same year, the company was in trouble for several network outages that left both customers disgruntled and the government concerned. 

Resultantly, the company had to make a number of changes in its hierarchy. But that wasn't enough as its share prices continued to drop, and the company was faced with opening its regional network to competitors for roaming services. 

Time To Take Control Of The Situation

By 2018, profits weren't just falling; they were nosediving. Telstra continuously had to cut down its dividends, and Penn's tenure was infamously marked by a $46b loss of shareholder value.

If immediate action wasn't taken would have found it very difficult to bounce back. But as it had shown over the years, Telstra wasn't going to let any challenge be its sinking point.

Responding to the crisis, in June 2018, Telstra announced its Telstra2022 plan. It aimed to turn around the company's fortunes through systematic and transformative measures that would reduce operating costs by $1 billion and bring Telstra to sustainable profitability by 2022.

The Telstra2022 was built on 4 pillars with these 6 major outcomes to achieve:

  1. improve the customer experience
  2. simplify its offerings, business, and operating model
  3. cements its "network superiority and 5G leadership" 
  4. be the leader in global high performance with employee engagement 
  5. reach net cost productivity of AU$2.5 billion 
  6. accumulate post-National Broadband Network (NBN) return on invested capital of 10%

Along with this plan to revive the company's success, Telstra also sought to improve its services with superior offerings and letting technology drive its way forward. 

A key move in this regard was setting up InfraCo. This subsidiary company was given control of the company's infrastructural assets, such as data centers, domestic fiber, copper, subsea cables, exchanges, etc. Banking on innovation, InfraCo rolled out dark fiber cables in six state capitals, beckoning the country into a new age of communication and technology.

dark-fibre-optic-cablesSource

The COVID Boom

The COVID-19 pandemic affected industries in different ways. Some were severely crippled, with many businesses no longer able to keep their doors open. On the other hand, businesses with digital platforms were pushed into an unprecedented acceleration of growth and demand. 

Telstra was one of them. So, as online streaming surged and businesses and schooling went online, the requirement for the internet shot up. To support the increase in traffic and deliver high-quality services, Telstra has partnered with several global companies to be at the forefront of the digital revolution.

Key Takeaway 5: Difficult Times Call For Difficult Measures

Throughout its history, Telstra faced countless challenges, but this time, its situation was dire. 

Realizing the need for prompt action, the telecom company brought up the Telstra2022 initiative.

The reduction in costs and overhaul in its strategy isn't easy with the scale Telstra operates at, but it was necessary for survival, and the company showed that it could take the hit – eventually bouncing back even higher.

Simultaneously, the company did not stop its innovative progress and, through InfraCo, it introduced dark fiber to the country – further helping the company's comeback.

Key Strategic Takeaways

Growth By The Numbers

The numbers Telstra has produced have been stunning, to stay the least, and it has continued to grow despite all odds and challenges.

Let’s see its rise through its recent growth figures.

Year

2021

2018

Revenue

$23.1 billion

$22.51 billion

Workforce

27,015

32,293

Total Assets

$29.8 billion

$33.2 billion

Share Price

$3.92

$2.85

By far, Australia’s leading telecom company, Telstra has proved through its decades of dominance that the ambition to grow backed by innovation, resilience, and adaptability can take a company to the very top.

This journey was in no way smooth and easy; it was filled with ups and downs and challenging situations. But Telstra’s strategies and response have been the highlight of its success.

Let’s revisit some of its shining points on its growth path:

By far, Australia's leading telecom company, Telstra has proved through its decades of dominance that the ambition to grow backed by innovation, resilience, and adaptability can take a company to the very top.

This journey was in no way smooth and easy; it was filled with ups and downs and challenging situations. But Telstra's strategies and response have been the highlight of its success.

Let's revisit some of its shining points on its growth path:

Have An Eye For The Future

Telstra originated in a time where the world was gradually changing, but people didn't really understand the impact telecom would have. But this company was ahead of its time. 

It saw the future would rely heavily on this sector, and thus, Telstra chose to invest in new technology despite not having an abundance of resources. As a result, the company was at the forefront of telecom growth, and the market was completely its to be captured. 

Innovation Drives Growth

There were several challenges that the company faced after dividing up into separate industries for telecom and postal services. Instead of succumbing, Telstra responded to each one by coming up with innovative solutions. 

For instance, its Rural and Remote Areas Programme to reach isolated regions was a success. The company also introduced the mobile phone that changed the concept of telephones for everyone in Australia.

Unsurprisingly, it also meant a significant rise in revenue and popularity for the company.

Be Ready To Accept Change

For most of its initial decades, Telstra had the advantage of being supported by the governments and not having any major competitors to deal with. However, this all changed as the company headed towards privatization, and new entrants challenged its monopoly. 

Readily accepting, changing circumstances, Telstra chose to focus on staying ahead of the competition through its better customer service and constant drive to improve its products as well introduce new ones.

Consequently, increased competition did more to push the company's success than taking over its market.

Follow A Proactive Approach

For any company to survive, let alone thrive, it needs to stay on top of trends by focusing on market research. Telstra knew and understood this, and more importantly, in David Thodey, the company had strong-minded leadership to follow this particular tactic.

Thereon, the newly privatized company took its service provision to the next level by analyzing the market and offering new programs such as its affordable broadband network Belong and branching out into the e-health sector.

This outlined the company’s growth in recent years and helped pave its way to the top.

Bounce Back With A Plan

Several challenges came piling up for the company with network outages, failed joint ventures, and intense competition. Having been backed into the corner, Telstra responded with an elaborate plan with some brave decisions to bring the company back into profitability.

Thus, instead of falling down, Telstra took it as an opportunity to make necessary changes and come out on top. The pandemic only sped up its resurgence, and today, it still stands as the behemoth of the industry.

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