Telstra and Microsoft lock in five year strategic deal

The five-year deal cements the country’s largest telco and the US tech giant as an imposing force in the hotly contested battle for cloud services.

Satya Nadella while in Sydney in 2019. Picture: Mark Nolan/Getty Images for Microsoft

Telstra and US tech giant Microsoft have locked in a five-year agreement in Australia which is set to extend across the Asia Pacific in a major expansion of their partnership and boost to Australia’s influence across the region.

Combining Microsoft’s technology with Telstra’s network capacity, the deal cements the country’s largest telco and the US tech giant as an even bigger force in the hotly contested battle for cloud services for Australian businesses.

The move also builds out the partnership in the geopolitically sensitive Pacific region with Microsoft to explore greater usage of Telstra’s Asia Pacific subsea cable network.

Under the agreement announced on Monday, Microsoft will become an anchor tenant on Telstra’s ultra-fast intercity fibre network currently under construction, providing a significant revenue stream.

Microsoft Azure becomes Telstra’s preferred cloud partner in its multi-cloud approach for businesses and will underpin the telco’s T25 plan to have 90 per cent of its applications on the public cloud by 2025.

Telstra CEO Andy Penn, who steps down from the role in September, said the expanded agreement will turbocharge how Telstra delivers digital services.

“Our strategic partnership with Microsoft is on a scale not seen before in Australia, and it will be Australian businesses who will benefit at a time when the urgency to digitise and transform their operations has never been greater,” he said.

For Microsoft’s Chairman and CEO Satya Nadella, the deal is one of the largest with any telco globally.

“Our partnership brings together Telstra’s leadership in network connectivity with the breadth and depth of the Microsoft Cloud to address key challenges, including hybrid work and sustainability, and support Australia’s growth,” Mr Nadella said.

As part of the new arrangement Microsoft will look to lift capacity on Telstra’s Asia-Pacific subsea cable network which would offer it end to end connectivity across telco routes in Australia and the broader region.

Supplied Editorial Telstra CEO Andy Penn. Source: Supplied.

The telco this month closed its $2.4bnbn takeover of Digicel Pacific on behalf of the Australian government, with telecommunications and digital security seen as key strategic pillars for Australia and its allies against growing Chinese influence in the region.

Tapping into the new demands for hybrid work capability among businesses, Telstra plans new industry based solutions in manufacturing, retail, agriculture and utilities using Azure, Microsoft 365 and Microsoft Teams.

Telstra’s ultra-fast intercity fibre network will use 5G to boost connectivity for Microsoft which increasingly is seeking more bandwidth and reduced latency for products like Teams, Xbox and cloud offerings.

The two companies will use the deal to help enterprise government and small business customers tackle ESG challenges by bringing together data insights from the Telstra Data Hub Platform and Microsoft’s Cloud for Sustainability. Microsoft has ambitious plans to be carbon negative by 2030, while Telstra has set a target of reducing its absolute emissions by the same period.

They signed an initial deal in September 2020, as part of Telstra’s plan to position itself as a broader technology company, while for Microsoft the Telstra deal signifies the latest win in a growing battle for customers with the likes of Amazon Web Services.

“The global scale of Microsoft’s platform, tools, and applications, together with Telstra’s network solutions, reliability, and leadership, will drive new and unique solutions for Australia,” Telstra chief Andy Penn said in September.

For Mr Penn, the deal signifies part of the end of his telco’s shift out of its T22 strategy – which has been defined largely by cost-cutting and efficiencies – and a move in to T25, which he has labelled a “strategy for growth.”

Mr Penn will be replaced by Telstra’s current chief financial officer Vicki Brady from September 1.

“Telstra is a vastly different company to what it was four years ago,” the outgoing CEO told investors recently. “With T25 Telstra will be a vastly different company, again.”