Analysts query Telstra's moves, jobs plan

Less than a month after Telstra issued guidance that it would slash IT costs by half over three years, it has again spooked analysts with confused messages over sourcing and two major contracts awarded to Indian-based software house Infosys.

Infosys is understood to have secured contracts for consulting on Telstra's Siebel-based ERP systems over Deloitte Consulting to the tune of $10 million, while IBM GSA has been spurned in favour of the Indian based powerhouse for infrastructure services to the tune of $75 million. Combined IT job losses for both the projects are tipped to top 350, with Infosys delaying local hiring announcements until contractual ink has well and truly dried.

Yet it is Telstra's newfound passion for outsourcing, after publicly embracing insourcing - coupled with shrinking revenues that has analysts wondering.

JP Morgan analyst Lynn Canalese is one watcher still looking for straight answers, sceptical that the technology-based cuts will yield the desired savings.

"I'm not sure that [Telstra] will be able to deliver based on its strategy of insourcing versus outsourcing. The market looks at it from an overall cost perspective. The [cost cutting] presentation did not address jobs…it did not include labour costs. The cost cutting is coming from systems improvement.

"The interesting thing is what happens to jobs, and that is still unclear with aspects of [Telstra] insourcing rather than outsourcing IT. Some jobs will be done in India rather than here, but you still run the overhead of having to manage some of the systems that still have to be here. With the lack of traction on the cost cutting, we are not giving them the benefit of the full $600 to $800 million over the next three years", Canalese said.

Telco analyst Paul Budde is similarly unconvinced about the strategic direction of cost cutting, arguing that ultimately new investment will be needed to stem the loss of voice revenue.

"The future of the telcos depends on data communications and applications, and they are not good at that - so they have to pay big money for applications. That's not going to go away. You cannot expand your business and develop new applications and all that sort of stuff by cost cutting. It's ridiculous. There's not a way in the world you can do that.

"Most companies would go for growth, but there is very little new investment. Telstra basically maintains its business…that's where the $3 billion goes to annually: to maintain the network. There is very little to nothing invested in new developments. That's your future business; if you don't do that, you kill your business. It might reap a profit now, but it can't go on forever," Budde said.

Budde says that any labour shift to India must be viewed in context. "We will have to be better at other things. It's really stupid to shoot the Indian people for being good at something and saying we don't want something to move to India. It's like saying let's dig up coal in England."

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More about: Deloitte Consulting, Deloitte Consulting, Deloitte Consulting, GSA, IBM, IBM GSA, Infosys, JP Morgan, Telstra
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