In January, Australia’s telecommunications behemoth, Telstra, announced that it had snared a, relative, minnow, O2 Networks, an Australian provider of network and security consulting and integration services with 100 staff and 370 customers. Telstra was said to have paid $60 million for the company.
Telstra said the move was designed to strengthen its Network Applications and Services portfolio. Telstra’s Network Applications and Services (NAS) executive director, Michelle Bendschneider, said “As our customers shift towards cloud-based environments, they increasingly require capabilities to securely integrate networks, data centres and cloud-based applications.”
O2 was Telstra’s second such acquisition in less than six months. In August 2013 it announced the acquisition of NSC Group, an Australian-owned integrator of unified communications and contact centre technology with more than 230 staff supporting over 600 customers across the Asia Pacific region.
The then head of Telstra NAS, David Burns said the acquisition would make Telstra the leading provider of unified communications solutions in Australia and strengthen its contact centre technology services.
These are just two examples of a path being followed by former incumbent telcos, like Telstra, the world over. As revenues from the traditional legacy services decline and as these services become increasingly commoditised they realise they most move up the value chain and diversify into other markets, putting them into head-on competition with those companies that have traditionally added value to their services.
Telstra’s archrival, Optus, has not been similarly acquisitive in recent years: its last major foray in this direction was in 2005 when it paid almost $6 million for Alphawest. Optus’ then CEO, Paul O’Sullivan said at the time that Optus was “executing on our growth aspirations as an integrated ICT provider” and that the deal would “enhance Optus’ ability to offer end-to-end solutions to corporate and government customers.”
Most telcos however have a long way to go before these new service offerings come anywhere near their legacy businesses in value. For FY13 Telstra reported that its NAS division had earned revenues of $1.5 billion, a 17.7 per cent increase from the previous year, but that was only a small fraction of total revenues of $26 billion.
Nevertheless when the 600 pound gorilla wanders onto your turf it’s likely to wreak havoc, without really trying.
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