Government the prize catch as Telstra’s Andy Penn goes fishing

Telstra chief executive Andy Penn. The company has made it clear that any deal on Digicel would have to make commercial sense. The government is expected to fund much of it.

On Telstra’s investor day on Thursday, CEO Andy Penn’s T25 strategy was to target a few important business sectors for growth: energy, health, mining, supply chains, agriculture and loyalty. But none is as important as government business.

Australians woke up to extraordinary pictures of national leaders Joe Biden, Boris Johnson and that guy from Down Under, Scott Morrison, launching AUKUS with a focus on our region.

Andy Penn is probably closer than the market thinks to signing a deal with the Australian government to take over Digicel, the critical communications infrastructure business covering the South Pacific.

Twice in Telstra’s investor call Penn volunteered to talk Digicel but there were not bites from analysts. “I only raised it because I don’t want to shy away from it,” he said later.

Telstra already has a large footprint in the region through extensive submarine cable networks. “We have developed a very significant network of telecommunications infrastructure to the point where we probably represent about one third of all internet intra-Asia-Pacific traffic today,” said Penn.

In August Penn was in Papua New Guinea for three days on due diligence.

“I did go to PNG as part of that overall work and we are in those discussions and we have obviously been spending quite a bit of time on it,” he said. “It is something we are looking at very seriously.”

Asked if Digicel’s Irish owner billionaire Dennis O’Brien had agreed to a deal with Telstra and the government, he said: “Well, those discussions are ongoing and it’s not guaranteed that they will complete. I can’t say too much at the moment.”

Telstra has made it clear that any deal on Digicel would have to make commercial sense. The government is expected to fund much of it.

We don’t know what factor drove the timing of the AUKUS announcement, which came as a surprise around the world, but the strategic importance of the South Pacific and the well-known canniness of O’Brien as a negotiator raises an obvious question: could a deal, at least in principle, already have been agreed to behind closed doors?

Telstra’s own deal with NBN has run its course, but its relationship with the government is richer and more complex than ever. Penn’s T22 strategy has made the telco financially stronger: it is the clear leader in 5G, and it is Australian-owned, a flag carrier.

AUKUS is about Five Eyes intelligence in our region, and secure communications and technology is imperative.

“There is not a dimension of government that is not an important customer to us,” said Penn, who cites state as well as federal government work in health and education. Federally, though, Telstra has worked closely with Employment Minister Stuart Robert setting up Services Australia and shifting departments over to digital. Penn chairs the Cyber Security Industry Advisory Committee that advises government on cyber security and has been pushing it to be an exemplar.

Andy Penn’s sector-led strategy for growth in business is ambitious. Two of the most interesting areas are in energy and in Telstra Plus.

Telstra is now a fully fledged energy retailer, with plans to be one of the top five in the country by 2025. Penn dismisses any idea that the telco might buy an energy player. These businesses come with legacy assets but energy must be forward-facing.

Energy retailers also want to become aggregators offering telecoms services. This is a hot market, especially around customers moving home. But Penn insists that the idea of the consumer being left with the option of a bundled strong telco and lousy energy service or the reverse is not the Telstra offer.

“We want to provide our customers with great in-home solutions that empower them to get the most out of their connectivity, out of their energy and manage their energy in the most efficient way. We have a lot of field techs that visit homes on a regular basis, a lot of technology in the home, we’ve got routers, Telstra TVs, Wi-Fi Doctor, and we will be putting in smart meters for every energy customers so there are some really nice integration opportunities,” he said.

Telstra Plus, a latecomer the packed market of loyalty programs launched only two and half years ago, has been a surprise success and Andy Penn wants to use it to grow the small business customer base. Already with 3.5 million members, Telstra plans to grow to 6 million by 2025 and expand to a full scale sales and marketing channel.

“It shot the lights out from my point of view,” said Penn. “As a program like this gets momentum, more businesses that are not Telstra see it as a great opportunity to access those customers. They want to offer their products and services into the loyalty program to access those customers. That adds value to the loyalty program for our customers, so more customers want to join the loyalty program. You get this lovely virtuous circle.”

In a pilot, Telstra will be offering localised business services to Telstra Plus customers. “There is a great ecosystem there where we can support small and medium business, but also add value to our customers, which enhances the value of the loyalty program.”

Andy Penn is hoping the loyalty program will then work to bring in new small business customers. “If they are going to be part of the program they need to be part of the program digitally, so that’s an opportunity to help them upgrade their digital capability.” If it gains traction, Telstra Plus could become an important asset in its own right, as it has done for businesses like Qantas.