The complexity of the task facing Telstra in disentangling its complex information technology systems has been highlighted by a nine-month extension granted to Telecom New Zealand for its operational separation. Telecom was expected to finish unscrambling shared IT systems by the end of this year, having agreed to an operational separation in March 2008 that will split its business into three units - retail, wholesale and network.
But the telco requested an extension, granted on Friday by New Zealand's Minister for Communications and Information Technology, Steven Joyce, because it was unable to meet deadlines for system changes and integration testing.
The systems contain confidential customer information, which the separation would prevent Telecom's retail and wholesale units from accessing. Telecom has until September 30, 2010, to complete the split.
It is reported to have spent $NZ170 million ($135 million) on operational separation during its last two financial years. It had previously estimated total project costs at $NZ200 million over five years.
Telstra is discussing structural separation with the Rudd government after Communications Minister Stephen Conroy threatened to stop the telco buying next-generation wireless spectrum unless it came to heel.
Chief executive David Thodey has been much more open to negotiations than Telstra's previous management, but last month voiced strong opposition to the government's proposed amendments to telecoms legislation.
Telstra claimed that the bill, which is designed to force separation and make the telco sell its infrastructure assets into the national broadband network, would delay the government's "NBN vision".
But Senator Conroy won a key vote in the Senate at the end of last month to proceed with the debate, in effect trampling on Telstra's delay tactics.
If Telstra is forced into structural separation, it has estimated IT costs at between $500 million and $1.2 billion. Former chief information officer Fiona Balfour, who has also held the top technology job at Qantas, has warned that potential disruption to customer service would be an even bigger concern.
"In telcos, or indeed any large corporate, there are always consequences when you change customer-facing systems," she said.
"Even a change that you know is for the best can have a negative impact on customer experience. It's really easy to move assets around from one balance sheet to another - the hard bit is unravelling the logic and dealing with customers."
Telstra is already well aware of the minefield that accompanies major technology changes. Chief technology officer John Stanhope used the company's annual general meeting in Sydney last month to apologise for the "painful journey" some customers endured as a result of the company's four-year IT transformation program.
Costs associated with that project blew out by more than 60 per cent to reach $3.9 billion.
• Telecom NZ has missed its operational separation deadlines.
• It has already spent $135m on the costly and complex project.
Fairfax Business Media