Telstra IT model

IBM has snared a major role in Telstra's ambitious $11 billion technology and networks overhaul, amid growing concerns in financial markets that the project is costing more than expected.

IBM has joined Accenture in a systems integration role

Telstra has also moved to buy rather than lease major pieces of its information technology hardware systems.

"We partly moved away from leasing boxes and hardware to purchase them," Telstra finance chief John Stanhope said at the group's annual results briefing last week.

Rather than computers, Mr Stanhope was referring to IT hardware such as the 100 Sun Fire E25K servers installed to handle mission-critical work, Telstra spokesman Sarah McKinnon said.

IBM has joined rival Accenture in a systems integration role on the $1 billion business support systems and operational support systems projects as Telstra gears up for more spending on IT this financial year than last.

"Accenture and IBM are system integrators for the IT Transformation (business and operational support) and, as stated by Telstra in November 2005, Telstra will invest more than $1 billion in transforming our IT capability," Ms McKinnon said.

In a deal worth about $100 million, Amdocs is the major software supplier for the operational systems project but Telstra has also handed contracts for various elements of the overhaul to a range of small software companies.

"For our OSS transformation, we have selected key suppliers Amdocs, Cramer, Syndesis (now trading as Subex Azure), Metasolv, Infovista and VPIsystems," Ms McKinnon said.

"Transformation Release 2 (OSS) covers the new fulfilment and inventory control and customer service assurance systems for our mobile and BigPond networks."

The OSS system, which sits between Telstra networks and its customer information and billing systems, is due to be completed at the end of 2009.

The OSS is the most complex integration task in the transformation and addresses key issues such as congestion and physical access at the node and ensuring equipment from different suppliers is compatible at the network, device and operations support layers.

"We're now, obviously, well into the IT transformation," Telstra finance chief John Stanhope told investors last Thursday. "IT capital expenditure will go up in the 2008 year and the expense base will continue to come down."

Investors are increasingly concerned that Telstra's capital spending remains at the very highest end of its guidance and the results of the program are taking longer to hit the company's bottom line.

"Capex surprised us. Financial year 2007 capex was at the top end of guidance," Goldman Sachs JBWere analyst Christian Guerra said.

"Financial year 2008 capex guidance (between $4.6 billion and $4.9 billion), which excludes fibre to the node, was higher than our forecast and consensus ($4.3 billion)."

The first stage of the IT project is the billing and customer support systems (BSS), which is due to be released at the end of 2008.

Most of the software is being supplied by Oracle's Kenan and Siebel.

This is known as the BSS or Release 1 at Telstra.

"At the end of this year with Release 1, we'll migrate our customers to the new set of platforms and everybody will be more productive and efficient in managing the call volumes.

"So whether it be our direct labour costs or our contracts, the outsourced companies that we use, those costs will start reducing once we turn up the systems, we migrate the customers over and then start reaping some of the benefits.

"As we then move into Release 2 of our transformation on the IT side, we start affecting our OSS, which is our operating support systems, and there we start talking about the connections between the front end of the business and the back end of the business.

"In today's world, sometimes we can double or triple dispatch. Sometimes we don't have line-of-sight visibility for our technicians into accurate and complete records.

"There's a lot of productivity efficiency that will come then."

Despite some concerned about costs, markets were please about the re-signing of Telstra chief operations officer Greg Winn, whose contract with the company was up this month.

Mr Winn is the driving force behind Telstra technology projects and is well regarded in the technology sector as well as financial markets.

Telstra chairman Donald McGauchie did not disclose details of Mr Winn's new package, despite making his salary details available in 2005.