Could David Thodey beat Craig Dunn to be Telstra’s next chair?

The changing of the guard at Telstra will be complete within the next 12 months when John Mullen steps down as chair, in what is lining up to be a milestone year for the nation’s biggest telecommunication’s company.

Vicky Brady became chief executive in September and Michael Ackland, a former GE executive who joined Telstra in 2016, was promoted to chief financial officer. The question is, who will replace Mullen?

While former AMP chief executive Craig Dunn, a Telstra board director, is considered to be in the box seat to become the telco’s next chair, there is at least one outsider being talked about, who knows the company intimately. It’s former Telstra chief executive David Thodey.

David Thodey, a former Telstra chief executive, is considered an outside contender to be the next chair of the telco. Credit: Oscar Colman

Thodey stepped down from the Vodafone board in September, and has resigned as chair of Tyro Payments, effective from February, to “take up new opportunities”.

He remains chair of accounting software group Xero, and is also the lead independent director of Ramsay Health Care. Tyro, Xero and Ramsay, all have had significant challenges in the past 12 months, from underperformance to failed takeover offers.

Former AMP chief executive Craig Dunn, a Telstra board director, is in the box seat to become the telco’s next chair.Credit: Ryan Stuart

It’s been a bruising year for Thodey. Would he want to step in to be chair of a top 20 company like Telstra, if asked?

Thodey remains popular internally at Telstra, and was well-regarded for the substantial turnaround in customer service he delivered at the company.

The main criticism of his time as CEO was the $11 billion deal done with the federal government to hand over ownership of the company’s copper wire network to the National Broadband Network. In hindsight, it wasn’t enough compensation for Telstra no longer being the dominant wholesale fixed line network provider.

When Andy Penn succeeded Thodey, he was critical of that $11 billion deal, even though he shared responsibility for it. Penn was chief financial officer when the NBN deal was done, and took over from Thodey in 2015.

Telstra’s shares hit $6.60 just before Thodey departed in 2015. It was that year that the share price started to decline, after the NBN rollout, and it’s never recovered those highs. The stock is trading around $4 a share.

Craig Dunn has been on Telstra’s board since 2016, and was re-elected last October for another term, with a resounding vote in favour from shareholders. He’s chair of Telstra’s audit and risk committee, and is understood to have backed Brady’s nomination as CEO. He’s also chair of the Australian Ballet, and a director of brewer Lion.

Ming Long, the former chair of AMP Capital, and a director of IFM Investors and QBE, joins Telstra’s board in January.

Vicky Brady is considered a safe pair of hands, who is unlikely to change course on Penn’s T25 strategy, which includes the partial sale of Telstra’s infrastructure arm- InfraCo, which is made up of the telco’s data centres, optic fibre, ducts, pipes and fixed network sites.

Telstra started structurally separating parts of its business in 2021, with the 49 per cent sale of its mobile towers, Amplitel, for $2.8 billion, which represented an enterprise multiple - a ratio used to determine the value of a company - of a hefty 28 times.

While Brady’s focus may be on the upcoming ruling that the ACCC will make just before Christmas on the proposed Telstra-TPG tie up on some mobile towers and spectrum, her first big test as CEO will be InfraCo. She will be judged on how she structures and executes a 49.9 per cent sale of that business, and it’s success in creating ongoing value for Telstra.

Telstra CEO Vicky Brady’s first big test will be how she executes the partial sale of InfraCo.Credit: Fairfax Media

Analysts have valued InfraCo between $23 billion to a very bullish $30 billion. If half of it was sold, reaping InfraCo $15 billion at the top end, then Morgan Stanley expects Telstra would pay down between $2 billion to $3 billion in debt, undertake a buyback and lift its dividend.

Morgan Stanley also expects that a partial sale of InfraCo would mostly likely be to a consortium of superannuation funds, as was the case with Amplitel, or it could involve private equity. Either way the buyers for InfraCo are likely to be limited for security reasons to the countries that fall within the ‘five eyes’. A partial stockmarket listing for InfraCo is not out of the question.

The challenge for Brady and her team is that the bullish valuations for InfraCo will be very tough to realise in 2023. The world is reeling from multiple shocks driven by the disruption to supply chains caused by COVID in China, and the war in Ukraine that has led to soaring global energy prices and inflation.

The uncertain global economic outlook for next year, with fears that America and the United Kingdom could enter recession, has led to volatile debt and equity markets. Such an environment means fewer buyers for InfraCo compared to when the deal was done on Amplitel. During such challenging times a CEO needs the sounding board and support of the chair. Whether that’s still Mullen, Dunn or potentially Thodey remains to be seen.

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