The Association of U S West Retirees



The future of Telstra

Alan Deans

21 February 2006

He is striving to drag Telstra out of the past. However, in a wide-ranging interview with Alan Deans, CEO Sol Trujillo promises a future of wonders. -

In a wide-ranging interview with Business Editor Alan Deans, CEO Sol Trujillo promises a future of wonders.


Since riding into town eight months ago, all we seem to have heard from Sol Trujillo is how Telstraís profits are cactus, that he needs to sack thousands of workers and that tough competition laws need to be relaxed to help fix up the mess. But thereís another side to him, one that envisions a George Jetson-style of life coming to Australia.

Trujillo has kicked around at tele-phone companies in the US and Europe for more than 30 years. That gives him deep insights into the science fiction-like changes he sees coming into our lounge rooms and handbags. Get ready for your every command being obeyed as phones Ė or at least the next generations of gee-whizz devices Ė become critical to your existence.

In this exclusive interview, Trujillo also warns that regulations hamstringing Telstra need to be relaxed before the government pulls off its T3 share sale later this year. He also rebuts criticism about turning the telephone giant into his personal fiefdom, and holds out the carrot that the pain being felt by shareholders will be rewarded with strong profit rises.

His is a classic can-do attitude. He says that he now has a world-class team delivering his radical transformation plan, but he is very much the leader.

At last weekís interim profits presentation in Sydney, he strode to the stage and confidently predicted that everything was on track. But behind the lectern he nursed one leg, and by dayís end he could barely stand. After tearing a tendon playing tennis, Trujillo was supposed to be wearing a brace. This was not the day, however, to show any such handicap.



B: Whatís your vision for how telecommunications will look in 10 years, beyond what you are doing at Telstra?

ST: A device like the mobile phone will become the remote control to your life. Thatís important because we are multi-tasked in terms of our lifestyles. Part of our day is at work, part is at home and part might be at a sporting event. We live our lives in compartmentalised ways, but that will merge so that you move around easier, quicker and in a more friendly way. There are going to be many devices and services that enable a seamless life. I like to joke that you will answer your phone with a TV and watch TV on a mobile phone.

B: So people wonít be using phones like now? Can you give examples of how day-to-day life will be affected?

ST: Think back to The Jetsons, the Tom Cruise versions of Mission Impossible and movies like The Matrix, where people gave voice commands to make things happen. You will do that, because processing power and voice activation technologies are evolving. You will get up in the morning, give a voice command and start the coffee, turn on the air-conditioning and start your car so, if you live in a cold climate, itís nice and warmed up. Youíll telephone people using voice activation and see them on a screen. It could be the little screen on your hand-held device, on a PC or a TV screen or on a different kind of screen altogether. You are going to see, starting with the Commonwealth Games, a merged lifestyle coming about. We are working on those things today.

B: What will we see with the Commonwealth Games?

ST: The merging of our video capabilities, within BigPondís internet service, onto handsets and mobile devices. You could be at a bus stop and feel that you are in the stadium, thanks to the services we will be delivering in partnership with Channel 9 and others.

B: Is the home phone going to die and mobile devices take over?

ST: The fixed world will become untethered. Twenty years ago, cordless phones emerged, and most of us liked the freedom to move about. We are going to see a mobile service so that, when you walk into your home, it becomes your home service and, when you get into your car, it becomes your mobile service. Itís part of the seamlessness. Itís also about information retrieval and sending. Itís about watching a footy match or the latest movie, even it you canít be there because you have to get to work. You donít have to be left out. Thatís going to be the neat thing about the future.

B: How much will telephone companies be providing content and services rather than basic access?

ST: The media industry, the telco industry and the internet industry are converging. You can find media companies that are telcos. They are providing voice services, interactive communications, movies and a lot of other things. Telcos are providing entertainment services, and internet companies do all the above. Content companies will always be content companies, but not everyone will be the same. There are certain segments that want content centred on sports, and there are others that like gardening, or cooking or educational services. Thereís going to be a myriad of content opportunities being created.

B: Is it logical then for Telstra again to buy companies like Channel 9 or Fairfax? Or is that off the radar entirely?

ST: Itís off the radar for me. The simple reason is that content companies are good at what they do. Thatís not one of our core competencies. Therefore, we look at partnerships, at relationships where others create value in their businesses and we create value in ours. Our job is to create the environment for a service experience and deliver the services or content that our customers want.

B: You talk about broadband being central to Telstra. Could you explain that?

ST: I see broadband like most people saw wireless 10 to 15 years ago. When the mobile phone was invented, people estimated that, by 2000, perhaps 5% of the population would be users. Broadband is associated with the internet, and the internet is universal whether you are rich or poor, whether you are old or young or a big business or a small business. As you cotton on, you find that bandwidth helps you do things faster, and it helps you do things you couldnít do before. Today we see penetration levels of slightly under 20% of the population. My prediction is that in 5 to 10 years you will see 70%, 80% penetration, because the utility will be so high. When I first came here and went out to Lismore and Blackall, I saw young people being schooled using old technology. [They used a radio.] The bandwidth was not enough for them to see their teacher. Now, think about living in the bush and taking a course at the Melbourne Business School or at Oxford. Think about doing breast screening without women having to go into a hospital, relaying the scan to a lab in Sydney or Bangalore, India, and getting the analysis in virtually real time.

B: How much of a cot case was Telstra when you arrived? Did you have early warning?

ST: The board disclosed what they could, but disclosure requirements are strict and get limited to whatís publicly available. I know the industry and issues well, but thereís only so much you know until you get on the inside. I knew the transition and transformation that the board wanted was going to be difficult, because I have done it before in the US and partially when I was at Orange. The regulatory changes are always difficult, because thereís an old model and a new model. Working from old to new sometimes takes tension, conflict and a lot of work and constructive dialogue. All of that was known. In terms of the business, there are always things you learn. When I came, it took me about two days to learn that the plans and trends were not realistic going forward.

B: You were criticised for creating a personal fiefdom, bringing your ďthree amigosĒ. Was Telstraís management really that bad?

ST: Bringing in 10 people or 15 people from the US or Europe is not going to materially transform Telstra into a non-Australian company. Whatís needed when you go through transformation are certain skills, people that have done it and lived it. Yes, there are some that are not Australians, but today I added a key executive who is Australian. I am about building a world-class team that can get things done, because shareholders deserve it and we want to get it done as quickly and as well as we can. The people in Telstra are talented, itís just that in some cases they havenít had the experience.

B: You said recently that you see a time when Telstraís profits and margins will be growing strongly. Is that a signal that investors should get excited?

ST: The next couple of years Ė calendar years í06 and í07 Ė are going to be tough, because those are the reconstruction years. We are building networks, getting new systems, and that increases the cost and expenditure. But after that, the benefits will accrue. We are not managing for next month or next quarter, but for the next three to five years according to the plan we have laid out. We are on plan with that, but itís just the beginning.

B: Would you put your mother into Telstra shares?

ST: I donít make stock recommendations. Thatís not something a CEO should do. He needs to share his plans and information, and provide the confidence in management that the plans will work. Then, investors can draw their own conclusions. A large portion of my compensation is tied to whether we can drive the share price up.

B: What challenges do you face this year related to the T3 sale?

ST: The one thing investors want is predictability. Part of the challenge that those masterminding the process have is dealing with regulatory uncertainty. We believe there are major issues that need to be resolved. I am bullish, given what I know we are capable of doing, but there could be regulatory decisions that detract from that or damage value creation opportunities. In this industry, regulatory outcomes are material. That is why we have been encouraging dialogue and debate so we can get a resolution.

B: How do you view your relationships with the government?

ST: We are aligned with certain parts. Minister [Nick] Minchin has a strategy around T3, and wants the sale to be successful. We are aligned. If you look at the regulatory and administrative side, we have had tension Ė but thatís not unexpected. Some have overreacted, but we need legitimate debate. Just because we did certain things in certain ways in the past, doesnít mean that itís right to continue. The future of Telstra is vitally tied to the economic strength of this country. Our mobile competitors built their own networks, they risked capital. Guess what? Thereís no regulation, great innovation, great price competition and services competition, but people had to risk capital. Thatís a principle that should be the over-arching one, because it works well.

B: Are you enjoying being in Australia?

ST: I am having a lot of fun, most of the time.

B: Do you follow a football team?

ST: Not yet. Iím not educated enough. By coincidence, I happened to be a Swan attendee for three of their games on the path to the premiership. It was really fun. I think of it as a combination of soccer and American football, because you have all the hitting, but thereíre no pads. They use their feet, arms and heads and whatever else. And itís fast.

B: How long are you going to stay here?

ST: I am going to get our transformation done. I am going to stay here as long as the board wants me to be here, whatever that turns out to be and whatever it takes.

B: Would you become an Australian citizen?

ST: At my stage of life with my children in the States, no. But that is nothing negative against Australia; itís about where my roots are.

B: How do you compare working in America and Europe with Australia? Are we really a small pond?

ST: Australia is a country of 20 million. Itís not one of the biggest countries, and itís far away from everybody. The timezone difference is a big thing for connectedness. But there has been an Australian CEO of McDonaldís, one of the largest companies in the world. There has been an Australian CEO of Coca-Cola, one of the largest companies in the world. One of the interesting things to me is that sometimes Australians want to compare themselves to others and ask: are we as good? And the answer is, yes. Good people are good wherever they go.