Telstra 2007 Annual Report Download - page 48

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Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2007
The increases in our operating capital expenditure were across most capital expenditure categories, with the
exception of a decrease in customer access. The drivers of our operating capital expenditure for the year
were as follows:
• higher domestic switching as a result of our wireline transformation program. Telstra’s Next IPTM
network launched in April 2007 involves transforming our existing voice, data, IP and DSL networks into
a single network. It will upgrade the services offered, eliminate duplication and reduce complexity. Most
of the expenditure relates to IP enablement of our network involving the installation of new technology
infrastructure and the replacement of redundant technology;
• higher transmission expenditure due to increased transmission installation to cater for increased IP
traffic, as well as additional capacity to support the roll out of the new Next GTM network. The Telstra
Next IPTM network will create a powerful single integrated platform that will enable a seamless user
experience across all devices and platforms with one-command simplicity. Another driver is the
increased demand for broadband and other high speed products, which necessitates higher transmission
capacity;
• lower expenditure on customer access due to the achievement of operational and technology
efficiencies in the access network through the deployment of a new generation of Digital Subscriber Line
(DSL) equipment, increased utilisation of available network capacity, and other alternative technology
solutions. The reduced costs were also driven by the completion of an upgrade program to increase ADSL
capacity in the exchange network completed in fiscal 2006. This is partly offset by increased expenditure
on the upgrade of Hybrid Fibre Coaxial Cable which forms part of the wireline transformation program;
• slightly lower expenditure on our mobile networks primarily due to the Next GTM network which was
deployed ahead of schedule which resulted in fewer sites being built in fiscal 2007 and a corresponding
reduction in 3G 850 equipment costs. Spend on the 2GSM and CDMA networks was rationalised as the
Next GTM network is the main focus. This was partially offset by higher spend on the network coverage
and capacity and the asset replacement costs to meet the continued increase in traffic and capability of
the network. Higher spend was also incurred on the deployment of the High Speed Downlink Packet
Access (HSDPA) capability in fiscal 2007;
• lower expenditure on international assets. Purchase of international transmission capacity is ongoing
to meet internet traffic requirements with the United States and Asia;
• significantly higher expenditure on capitalised software as we embark on a 5 year program to transform
our IT environment through deployment of new capabilities and reduction in the number of systems
with a focus on customer care and billing, inventory management and supply chain services. Many
projects have been accelerated from fiscal 2006 which is causing the substantial rise in expenditure for
fiscal 2007. There has also been considerable spend on Sensis Product Development initiatives;
• increased expenditure on specialised network functions, specifically transformation programs related to
3G growth and the IP network. Expenditure also increased to improve the reliability and robustness of
the network and BigPond® rebuild program; and
• higher expenditure on other assets was predominantly driven by expenditure on IT infrastructure to
support the IT transformation program and network infrastructure to support the next generation
network. The next generation network related programs included initiatives such as air conditioning
requirements at network sites and new telepower equipment to meet growth requirements in Telstra
network sites. There was significant spend on IT hardware as we move from leasing to purchasing
outright, which has contributed $337 million to the year on year increase. Additional spend has also
been incurred on improving the reliability and robustness of the network and IT infrastructure.
Our other intangibles expenditure has reduced by $63 million to nil during fiscal 2007, as the expenditure in
fiscal 2006 related to the acquisition of customer bases from Keycorp relating to their payment transaction
network carriage services business.