Dropped line adds to Telstra and Andy Penn challenge

It has been a frantic week that ended on a contrite note for newish Telstra chief executive Andy Penn.

Telstra chief executive Andy Penn. Picture: Britta Campion

It has been a frantic week that ended on a contrite note for newish Telstra chief executive Andy Penn.

Talk over Telstra’s ambitions in Asia was stopped short by another failure of the telco’s mobile network.

A severe outage, which left millions of customers without a mobile phone for several hours on a busy Thursday night, left the company scrambling for ­answers.

It is the third time in just under a month that Telstra’s rolled-gold network has failed to live up to its reputation and Penn can ill-afford another mistake of this magnitude.

The network woes come as Telstra’s ambitions in Asia have suffered a reality check, with its $1 billion joint venture in The Philippines going up in smoke, amid suggestions that the telco’s board was losing patience with the venture. Shares in the telco remain stuck at two-year lows amid lingering questions about where the next burst of growth will come from.

Yesterday, The Australian revealed the telco is considering selling as much as 60 per cent of its holding in pay-TV network Foxtel, a further sign of the telco’s cooling media interest.

On this, Penn is keeping the cards close to his chest.

“I think I have made a point before that Foxtel is strategically important to Telstra,” he says.

Media is just one of the many battlegrounds for Telstra and its rivals as they look for points of difference. Optus has gambled heavily on locking in exclusive soccer and cricket content to counter Telstra’s involvement in the AFL and NRL and pushing unmetered access to streaming services such as Netflix to cus­tomers.

The fate of the Foxtel stake adds to what is already a full plate for Penn, the former boss of life insurer Axa Asia-Pacific who took charge of the telco in May.

With the mobile joint venture in The Philippines fizzling out, there’s doubt about just how big a player Telstra can become in a region dominated by incumbents like Singapore’s Singtel.

There’s talk that the prospect of protracted regulatory action in The Philippines was behind Telstra’s board getting cold feet, forcing the telco to move away from what is undoubtedly a lucrative consumer market. According to Penn, there was no single issue that forced his hand in The Philippines, but it was clear that the agreement in place was not in the best interests of Telstra.

The telco is likely to follow the path of least resistance when it comes to its Asian adventures, and for now it still rules the roost on its home turf, mainly on the back of the robustness and the reach of its network. Telstra pours more than a billion dollars a year into it.

But the latest disruptions have raised concerns whether the investment is adequate given the continuing rise in the volume of traffic on Telstra’s networks.

Penn was forced to front the media yesterday morning to hose down concerns. His message was twofold — to placate customers and reassure investors.

Despite the promise of another day of free data to win over customers, another serious outage could be catastrophic for ­Telstra, especially at a time when its rivals are catching up on network coverage and performance fronts.

Telstra attaches a hefty premium to the reliability of its ­network but the widespread disruptions raise the question of whether that position is justified.

Giving customers free data is one thing, but it doesn’t address the headaches suffered by businesses that rely on the network for transactional and data services. It is unclear how Telstra intends to compensate these businesses and for now there’s no hint of any financial assistance.

Telstra says the outage that ­affected almost eight million customers was a result of a cascade error where an initial problem with an overseas cable disconnected a large number of customers. Subsequent attempts to reconnect customers led to wholesale network congestion.

The mobile outage was not the only issue in the last 24 hours, with fixed-line customers unable to connect to services hosted on one of Amazon Web Services’ Sydney data centres yesterday morning. It’s understood the hiccup was caused by a third-party vendor.

Penn says he’s confident the core network is up to scratch and a comprehensive review of network operations is under way.

“I understand that people rely on the performance of the network and that’s why we are investing so much in our network, and I know we need to do a lot of work to regain the trust of our customers,” Penn says.

The latest problems follow a massive outage last month that caused customers across Australia to lose mobile access for hours.

Telstra blamed that outage on a “human error” after a core node was knocked offline.

Teresa Corbin, chief executive of the Australian Communications Consumer Action Network, says that given the size of Telstra’s network, a large number of customers will have been affected. “A short outage may not be catastrophic but it has a significant impact on business,” she says.

With $5 billion earmarked to be spent on Telstra’s network by 2017, Penn says the bulk of the investment has been allocated to develop extra capacity. The main issue is being able to keep up with the rising data demands of customers.

“The volume of traffic on the network is growing exponentially,” Penn says. “We saw a 40 per cent increase in traffic on our mobile network in the last 12 months and part of our investment is about building resiliency and that’s why I am so disappointed that on this occasion we let our customers down.”

As Telstra assembles a team of experts there’s no immediate evidence of a systemic weakness.

The two major outages are unrelated and the underlying network is still healthy. But it does need a lot of investment if Telstra is serious about transforming itself into a technology company.