Telstra spends $1.5bn more on IT in transformation

By Ry Crozier on Oct 28, 2009 2:02 PM
Filed under Communications

Pledges continued investment to prevent "big bang" projects.

Telstra deliberately spent $1.5 billion more on IT than planned as part of its $11.9 billion IT systems transformation project but saved $1.3 billion in other areas, leading to an overspend of "around two percent", the telco said today.

Speaking at its investor day in Sydney, Telstra chief financial officer John Stanhope provided investors what he called "IT transformation closure" - essentially, the time details of the project would be split out of its s general capital spending.

"It's now business-as-usual [on spending]," he said.

Stanhope said that over the past five years "unsurprisingly" there were changes to the financial scope and mix of investments Telstra would make as part of the transformation.

"The total spend on IT will be about $1.5 billion more than we originally planned," Stanhope said.

"That's been deliberate. I want to emphasise that it's not an overrun in spending, but back in 2004/5 there were things we didn't scope [for inclusion]."

Stanhope said Telstra had spent an extra $500 million on projects including an enterprise data warehouse, desktop integration and online billing.

Another $200 million was spent on "additional complexity" not conceived as part of the original project scope or created by adding new projects.

He revealed about $400 million was spent on capital infrastructure that Telstra had intended to lease.

Stanhope countered the extra spending with about $1.3 billion less spending in "other areas" of the project, including "a little less" on wireline technology.

"There's been a total overspend of around two percent of the original budget set back in 2005," Stanhope said.

"There's been no transformation cost blowout at Telstra, which has often been said."

Stanhope produced figures which showed the IT cost reduction benefits Telstra would achieve over the next three years thanks to the transformation.

The transformation would enable IT cost reductions of $69 million in 2009/10, growing to $120 million in 2010/11 and $140 million in 2011/12 and would come from areas including system rationalisation and other vendor savings.

But he said there were many more business benefits to the transformation other than the hard dollar savings.

Stanhope also committed to continued spending on the new systems, citing Telstra's previous reliance on "big bang" IT projects as one of its key learnings from the transformation.

"We've learnt you cant stop investment and do big bangs," Stanhope said.

"Big bangs are painful and we don't want to do that again."

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Telstra spends $1.5bn more on IT in transformation
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