EXCLUSIVE: Telstra is preparing to hack its marketing and ad spending by 10-15% in a wave of cuts aimed at preparing for a hit in earnings for the 2011 financial year.
The telco giant is also bracing for a new competition regime under the federal government’s NBN rollout, which could see major retailers such as Woolworths and Coles bundle their own retail telecommunications services similar to successful expansions into petrol retailing [AdNews, 25 February, “NBN” cover story].
Telstra released its December half results for the current financial year on February 11, reporting a 2.5% drop in revenues to $12.3 billion and a 3.3% decline in net profit to $1.85 billion.
The current round of cuts to Telstra overall marketing expenditure – estimated to be upwards of $300 million – is understood to be driven by a short-term need to improve revenues and earnings for the full financial year ending June 30.
But broader structural and operating changes are also in play at the telco to position the company for the NBN in which Telstra will no longer hold a competitive advantage by owning the telecommunications backbone to homes and controlling the wholesale market which it on sells to rivals.
The telco giant has flagged to agency providers in the past week that spending cuts are coming and that a revamp of its agency roster is likely. Telstra’s new chief marketing officer Mark Buckman does not take the chair until 4 April and any official announcement on agency changes is unlikely until then.
“There are definitely cuts happening and some rejigging of the agency roster but they don’t want that on the radar,” said one Telstra observer who did not want to be named. “They are literally in the process of talking to agencies about who will be doing what.”
According to Nielsen, Telstra lifted its ad spending for the 12 months to November last year from $85.9 million to $99.6 million over the same period in 2009.
Speculation is mounting that Ogilvy and BWM are losing their dominance in the Telstra hierarchy with DDB and Droga5 on the rise. DDB won Telstra’s rebranding project in a final two-way showdown with BWM. Three Drunk Monkeys is also on Telstra’s roster but may have issues arising from its refusal to repitch for Foxtel’s advertising account – Telstra owns 50% of Foxtel.
The appointment of Buckman as Telstra’s CMO, currently in the same role at Commonwealth Bank, has stirred industry-wide speculation that he would throw open Telstra’s agency contracts for a major review, similar to the controversial move he made after joining Commbank and appointing San Francisco hot shop Goodby Silverstein.
However, the early signals said to be coming from Buckman are that he may be reluctant to unleash wholesale agency changes but may reduce the roster or realign its lead agency partners. “The reality is previous management let too many agencies on the roster and that needs to be tidied up a bit,” said another Telstra insider.
The bigger, long-term agenda, however, is how Telstra positions itself for the NBN. It has still to sign off with the federal government on an $11 billion deal to transition across to the NBN and progressively decommission its current copper lines to make way for the fibre network.
Current expectations are for the deal to be completed before June. Telstra chief executive David Thodey has said the telco’s priority under the NBN is for the company to be more “customer-centric” and to push further into content.
A Telstra spokeswoman declined to comment on the reduction in ad spend, and said: "Telstra does not comment on these kinds of matters, which are part of our normal
day to day work adjustments.
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