Sol Trujillo talks candidly about Telstra's transformation, the challenges and the environment that Telstra operates in today.

Trujillo was interviewed by CommsDay publisher and founder Grahame Lynch* at the GSM Asia Congress in Macau, China in a one hour session this week.

LYNCH: I want to start off by looking back at your two years at Telstra. You came in as a change agent and have generated a quite extraordinary level of criticism. Some of it may have been unfair or maybe little more than journalists and other critics pursuing an agenda, but do you think you have got enough credit for the transformation underway at Telstra?

TRUJILLO: I don’t do this for credit. The two credit accounts I look at are shareholders and customers. We had a senior management meeting last week and were looking at what people were saying about our transformation. Almost everybody’s predictions were so far off it was unbelievable. Even a month before T3, there was speculation it was going to be a dud but we sold out. Shareholders voted at that time and overwhelmingly so. Since then the share price rise has been greater than the ASX rise which is a feat in itself given the commodity boom. And if you look at customers and what we’re doing with market share we’re outperforming our peers across the world. Those are the metrics I pay attention to because when you make change it is never easy. Many people still in the company were hired as PMG employees! This company was in dire need of transformation.

Maybe you might be not so appreciated in Australia but what about internationally? Do you get many other telcos interested in your transformation programme?

Absolutely. While I’m here in Macau, people want to meet with me. They want to come to Australia and do benchmarking. We even have vendors coming to Australia and opening labs because they know we’re leading the world. Pre-T3 only 5%-6% of our shareholders were international, but now we’re at 18%-19%. IBM are only at 15%! So there is also international investor interest. We’re in a 5 year transformation and this company will be positioned like no other to go forward.

After your two and a half years in Australia, what were the main surprises for you in retrospect?

I was surprised by the government’s attitude to us. If you go to Spain and look at Telefonica, they are now a global company because the government supported their growth and not tried to undermine them. If you look at France or Italy, people want their local domestic companies to succeed. In Australia, it’s a battle, such as when they give a billion dollar free kick to a foreign owned competitor.

Does it surprise you that these policies have come from a conservative right-of-centre government that generally supports free market ideas?

It is surprising they would be anti-Telstra. I’m loyal to my shareholders, the mums and dads are coming up to me at the AGM, pleased at what they saw and that the share price is going up and they want us to stand up for them. In some cases the dividends are a major source of income for them. We’re going to be zealots about protecting their interests.

Was it disappointing that many of those shareholders rejected your remuneration plan? Do you acknowledge that Telstra might need to do a better job in selling itself to shareholders?

The institutions that make recommendations have a standard format in terms of how they think about remuneration plans. If you check all their boxes they recommend and if you miss some, they don’t. We have a remuneration plan that is laser-focused on achieving a transformation, not a steady state business. So they criticise us for things like incenting a management team to build a 3G network. The answer is that it was so strategic it changes the game in Australia for ever. The other criticism was the lack of transparency. But if we disclosed our plans to our competitors a year back we wouldn’t have made the same market impact. I was disappointed in the vote, yes. But we are doing the right things for the right reasons. As you watch the value being created, I don’t think the shareholders will have a problem with our plan because there is nothing in that plan that is not correlated with results.

When you look at all the noise about these issues, though, is there a risk that it distracts from your core transformation messages and you need to do more work on educating people about what you are trying to do?

It depends who you are talking to. We’re getting great traction with the consuming public. Is our end objective to please certain government officials, or to please the media or is it to please consumers? Our results speak for themselves. Our customers like the services. They are buying more and using more. We have a value-based strategy versus our competitors that go on with free this and discount that. Australians have the best wireless broadband infrastructure in the world whether you are in the city or the bush. Users in the bush using their data services more than the city folk! I have a belief about the market place that we like instant gratification and real time response. If you saw the letters I get from customers…We hosted a women’s business awards last weekend and some of the stories I heard…

Do you rate your competitors?

I don’t think about them and I don’t mean that in a disrespectful way. I’ve been in the business for over 30 years. If you go to your customer needs and serve them you will be better off. I’ve competed in intense markets like the UK and the US. Look at the mobile phone shops in Oxford St, London! In the US I could look at my window at AT&T and Sprint and MCI and they were coming at me every day! I enjoy that competition but I learned that if you get to the customer need first and do it well, 8 and half times out of 10 you win.

You’ve made many comments about the undesirability of the Australian regulatory regime. A logical progression from that is to pursue investment opportunities in other markets such as Asia but Telstra hasn’t been aggressive in that area. Why not?

When I first got to Australia obviously the mood of our investors was not good about past mis-steps in terms of offshore investments and they were leery. At the same time we had a great core business that was losing market share. PSTN decline was out of control and cost growth was double digit. Investors were saying why worry about all these other places, fix this place where your cashflow and margins are. That is a principle I respect. Our priority is Australia. Now we’re at a point where we have built the networks, the IT transformation is working well. And now we are interested in porting those capabilities to other places. Nobody is doing what we’re doing internationally. They might be doing bundles but we have an integrated company.

I would have thought that some of your systems would be quite marketable especially in Asia where incumbents are facing similar challenges in terms of competition and the need for transformation?

Again, the key is you have to have people willing to let you in. That is a variable in that equation.

You’ve provided extensive visibility on your transformation map and the immediate time frame of the next couple of years. What do you see happening at Telstra and the market place beyond that in terms of broadband strategy and so on?

We are going to be consumers of deca megabits of broadband. You might have seen our new BigPond ads where the entire family is getting online. Your son might be getting into high definition gaming. Then you have somebody on Facebook and Myspace downloading graphics and somebody downloading movies or doing work. It all consumes bandwidth. You might want high def TV? You might want to record something else. That’s 2 times the use. That’s mega decabits of bandwidth! It amuses when I see politicians saying 6 megabits is plenty. We’re looking at 30 or 50. We have to enable this capability to the home.

Let me pick up on this. The economics of broadband so far have been predicated on fortuitous inputs such as depreciated copper. Going to the next step of fibre requires an additional cost. Likewise the old days of Internet networks were based on high contention rates, basically most people not using it any given time. But with your scenario of multiple members in one household always on those contention rates will need to come down. It all adds to the cost structure. It seems to me as the largest provider in the market you will have to turn around and say, your broadband bill will be twice or three times what it is now to pay for all this. That’s quite an enormous selling job surely?

That’s the $64 billion question. That’s a strategic question that people should ask and understand the value. I said two years ago we were going to go on a value mission. We are not the cheapest in the market, but we provide the best service. Take a look at what we are doing in broadband. We outgrew our nearest competitor three-and-a-half times to one. Take a look at their advertising. They just talk about low prices. We talk about value. You see this coverage, you see the speed, and the ability to educate your children. We create a value map with customers. We have to migrate thinking. It’s not about how little they spend but the wisdom of investing in your kid’s education or the benefits of working at home. My ability to get health care at home, lead an enhanced life, get entertained at home. You’re right, this is a multi-year migration that, to be quite frank, our competitors don’t think about, partly because they don’t invest in infrastructure and when you don’t, you don’t think that way.

I want to ask about the FTTN tenders proposed by both sides of politics. Will you seek to win this at any cost even if that cost is unacceptably high?

We’d walk away. Our principles are well known. The Coalition is well aware of them. There is no mystery to what we do. We are not going to delude our shareholders. We shall not do something that a journalist wants or a government official for that matter.

Finally, what have you found most enjoyable about Australia in your time there?

The Australian people are so friendly and welcoming. I don’t think people there understand how unique they are. Two and a half years on they are still welcoming me. When you read the media and what politicians say versus what the people say it shocks me!

And how do Telstra staff compare with those at US West and Orange?

I had to bring in some people with certain mindsets. I might be a great baseball player but that doesn’t mean I play cricket well. I pulled in some people from overseas with experience and teaching the 99% of staff that come from Australia a competitive mindset. But who built Next G? Next IP? An Australian workforce. If you look at our leadership team down several layers up against anyone in the world they stack up. But on Sol’s scale, we are never good enough! (smiles)

*Grahame Lynch is CEO and founder of Communications Day, (commsday.com.au), Australia's leading source of daily news for the telecommunications industry. This interview originally appeared in Communications Day, 14 November 2007.