Telstra Corporation Ltd (ASX: TLS) has resumed its “T22” cost cutting measures. Are shares a buy?
Telstra is Australia’s oldest telecommunications business, having built the first telegraph line in 1854. It also has operations in eHealth, network applications and subsea cabling.
Cutting costs in 2021
The ABC reported that Telstra will move ahead with its plans to cut up to 1,425 jobs, after putting those plans on hold last year due to the coronavirus pandemic. It is expected to finalise most of these job cuts by the middle of this year, with a warning that there could be further job losses beyond that.
Telstra chief executive Andy Penn wrote in a company-wide email quoted by the ABC: “As you all know, last year we put our T22 job reductions on hold when COVID hit. We did this to give you as much certainty as we could during a very challenging time. We also said we would have to move ahead on these early this year as we continue to transform the company and complete our T22 journey. Today we are proposing up to 1,425 net role reductions.”
He continued: “adding today’s proposals, we expect to be more than 90 per cent through our T22 commitment to reduce our overall workforce by 8,000 net roles by 30 June 2021 and have completed or nearly finished by the end of this calendar year.”
These job cuts form part of Telstra’s T22 strategy which it has been working on over the last few years. As part of the strategy it is restructuring the business into three separate legal entities within the Telstra business.
Telstra cuts sport streaming for customers
Last week Telstra announced in a blog post on the Telstra Exchange that it will discontinue offering free NRL and AFL streaming for its customers.
Instead, it has moved towards supporting Foxtel’s sports streaming service Kayo.
In the announcement Telstra said that eligible customers will receive a special offer for Kayo’s basic subscription of $5 per month for the first 12 months (usually $25 per month).
Telstra has not explicitly said what the price will be after the first 12 months, but presumably it will likely revert back to the standard Kayo basic subscription price of $25 per month.
Is Telstra a buy?
Telstra is in a very competitive industry and it needs to be able to ‘stand out from the crowd’. Cutting its NRL and AFL streaming is cutting one of the ways it stands out and could see some customers being enticed to cheaper telcos.
Lowering costs by cutting jobs is not necessarily a bad thing as long as service for customers isn’t impacted. Efficiency and margin improvements are usually positive for the fundamentals of the business. However cutting costs too far could be detrimental.
You can only get so far by cutting costs. Telstra will need to generate revenue growth somehow for long term profit growth and ultimately share price growth.
With that in mind, there are other ASX dividend shares that I would rather buy such as Magellan Financial Group Ltd (ASX: MFG) and Brickworks Limited (ASX: BKW).
