2019 CEO survey: Andy Penn, Telstra

Telstra CEO Andy Penn. Picture: David Geraghty

Every year The Australian’s John Durie asks some of the biggest names in Australian business five key questions about what’s coming in the year ahead.

Here, in his own words, is what Telstra CEO Andy Penn sees ahead in 2020.

You can read more from the CEO Survey across this summer.

How is your company affected by low-interest rates and what is needed to boost the economy?

Telstra carries relatively low levels of debt, so while low-interest rates here and around the world are helpful, the impact falling interest rates have on our profitability is small. The fact that our debt is spread across a number of tranches with different maturities also lessens the impact of declining interest rates. When it comes to boosting the economy, we need to encourage both private and public sector investment, particularly in areas that can improve long-term productivity such as education and infrastructure. Over the past three years, Telstra invested more than $13bn to deliver new infrastructure and services around the country.

What is the impact of government regulations on your company including those applying to the financial sector?

Telecommunications is a heavily regulated industry, but I believe we have a very open and constructive relationship with regulators. They have an important job to do and we share their commitment to achieving outcomes that are in the interests of our customers and the community. A key focus for our industry as we transition to the NBN Co is for the legacy regulation to be scaled back over time.

What percentage of company revenues are spent on research and development and how is your company using technology to improve performance?

Our capital expenditure in FY19 was over $4bn, and a lot of this went into researching, developing and deploying technology like 5G. For instance, our 5G Innovation Centre on the Gold Coast continues to be the world-leading centre of mobile technology research. While only a small portion of our overall investment was eligible for the R&D Tax Incentive, we will continue to invest to ensure our customers enjoy cutting-edge technology. We are also investing to facilitate other company’s R&D. For example, Telstra Labs is home to Australia’s first publicly accessible Internet of Things (IoT) Lab. Its controlled radio conditions and equipment mean people can test and prototype IoT solutions. And through our start-up accelerator, muru-D, we’ve helped dozens of entrepreneurs design and deliver new technology businesses.

What are the three major policy issues facing the country and what should be done about them?

● We need to ensure Australia has a strong investment environment. In the telco sector, we can do this by reducing outdated regulations, encouraging co-investment models like the Mobile Black Spot Program, making sure the NBN is investing in infrastructure efficiently rather than overbuilding existing fibre. Creating this strong investment environment allows us to build a more connected future so everyone, including those in regional Australia, can thrive.

● We need to build a workforce for the future. This includes helping primary and secondary schools develop STEM skills from an early age, helping universities design and deliver courses that are relevant to areas of growing demand such as cybersecurity, AI, and data analytics, and helping people who are currently in the workforce continually learn new skills.

● And we need to improve digital inclusion. As more businesses and governments move services online, we can’t lose sight of the fact that many Australians remain unable to participate digitally – whether because of affordability, access or digital literacy.

What are the major impediments to long-term growth facing your company and what can or is being done about them?

Policymakers need to care about the long-term viability of the sector, taking into account all of the various policy levers. The NBN obviously gets a lot of airtime but there is also spectrum, cybersecurity and a raft of others that need to be considered holistically to ensure the sustainability of the industry overall. Telecommunications has become a vital infrastructure that enables the ways we live and work, which means the long-term prospects for the industry is positive. Connectivity is now a “must-have” across every part of the economy, and this trend will only grow as innovation leads to new technologies and services.

However, telecommunications is also a very capital-intensive industry, and globally we are seeing operators struggle to get returns on their investments that are higher than the average cost of capital.