Telstra to disconnect 2,800 jobs in a bid to cut costs by $350m

Telstra to disconnect 2,800 jobs in a bid to cut costs by $350m

Telstra (ASX: TLS) CEO Vicki Brady.

Australia's largest telecommunications company Telstra (ASX: TLS) has announced plans today to sack 2,800 employees, or almost 10 per cent of its workforce of more than 31,000, as part of a reset of its enterprise business that has experienced headwinds in a competitive environment.

Telstra's leadership has decided to slash the number of network and services (NAS) products in the market by two-thirds, so jobs in this area will be the first to go with consultation to start immediately on 377 roles.

Telstra CEO Vicki Brady says the majority of the job cuts will occur by the end of calendar 2024, with this and other actions under the reset helping the group achieve $350 million of its T25 cost reduction ambition by the end of FY25.

The company will however have to take a hit of $200-250 million in one-off restructuring costs.

"I appreciate the uncertainty proposed changes like this can create for our people and we will support them through this change with care and transparency," says Brady.

"As we propose specific changes, we will talk them through with our teams and union representatives first."

In addition to starting the reset of Telstra Enterprise, the group will reshape some of its internal operations by moving its Global Business Services function into other parts of the business, in order to "simplify processes and empower leaders closest to customers to make more decisions".

Telstra did not specify what proportion of job cuts will be outside Australia, although overseas positions make up around 10 per cent of its workforce across 35 countries.

Other changes, stemming from a review of the enterprise business announced with the company's half-yearly results in which net profit after tax (NPAT) rose by 11.5 per cent to $1 billion, include a reduction in the cost base of the Telstra Purple business and an update of customer terms for its postpaid mobile plans.

Telstra will be removing its annual price review that is linked to the consumer price index (CPI), which according to Brady will "provide greater flexibility to adjust prices at different times and across different plans based on their value propositions and customer needs".

In the half-yearly results, Brady described the mobiles business as central to growth with strong performance, lifting earnings by almost $300 million over the six-month period. Today she has reiterated the importance of the division.

"Our mobiles business continues to perform strongly, with growth in subscriber numbers for the first four months of this half consistent with the first half of FY24," she says.

"This success has underpinned our EBITDA growth in FY24 to date and reflects the high demand for our products and the value customers place on our differentiated network, its reliability and our flexible plans."

Today's announcement follows a 9.6 per cent lift in labour costs for Telstra in FY23 to almost $4 billion, with salaries up $351 million due to increased total direct full-time staff equivalents (FTE), wage inflation as agreed in the Enterprise Agreement and the insourcing of retail stores, having cut ties with third-party retailers including Vita Group in 2021.

Brady and former chairman John Mullen gave hints of where the enterprise might be going in their message to shareholders in last year's annual report, implying the business would aim to harness more artificial intelligence (AI) to service its needs.

"Our Telstra Enterprise industry teams are establishing deeper industry expertise across the agriculture, supply chain, retail, mining, energy, banking and finance, and government sectors," they said.

"We see huge potential in unlocking the value of data and AI, and formed our IT and Data & AI functions to grow our focus in those areas.

"Telstra Enterprise has also made strides in speeding up key processes and delivering for customers faster – 51 per cent of Enterprise service interactions are now through the digital channel."

Today Telstra has also reaffirmed underlying earnings guidance for FY24 of $8.4-$8.7 billion.

"Our continued confidence in our capacity to grow mobiles’ revenue and EBITDA, along with clear actions on cost out and to reset our Enterprise business, has allowed us to bring forward our Underlying EBITDA guidance for FY25," says Brady.

At the time of publication, TLS shares are down 1.77 per cent at $3.605 each.

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