Telstra 2008 Annual Report Download - page 30

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Telstra Corporation Limited and controlled entities
Full year results and operations review - June 2008
Other expenses increased by 6.5% to $5,246 million in the year ended 30 June 2008.
The largest component within other expenses is service contracts and other agreements, which increased by 7.4% to $2,339
million, largely driven by the following factors:
• IT professional services costs increased 34.9% to $568 million. Most of the increase is driven by transformation activities
associated with our billing and procurement platforms and a number of applications relating to billing, fulfilment,
inventory and customer assurance going into production. In addition, cost increases were driven by BigPond® website
costs, training and project write-offs.
• Other service contracts have remained relatively flat compared to the prior year with an increase of 0.7% or $12 million
to $1,611 million. The drivers of this cost line were:
• labour substitution to our outsource providers for call centres within our consumer business to cover increased call
traffic; additional fault repairs resulting from the extreme weather in the eastern states; additional transformation
costs related to simplifying our billing and procurement systems as well as costs related to the wireline
transformation; offset by
• substantial network maintenance cost savings, which has benefited from a reduced need for maintenance work in
areas such as optic fibre and cable pressure alarm systems, as a result of the newer technologies and the recently
transformed IP core network. Additionally, lower build activity occurred this fiscal year in our 3GIS partnership as the
number of 2100MHz mobile towers required to be built slowed.
General and administration expenses increased by 8.3% to $1,028 million primarily due to:
• higher IT costs due to additional software contracts and licences to support transformation systems as we move from
developmental to operational phases before the decommissioning of legacy systems;
• our legal costs were also higher this year following the settlement of a number of significant cases including finalisation
of a shareholder class action that had been in progress since 2006;
• increased training costs; offset by
• savings in non-rent property costs driven by synergies from reducing the number of property service providers used.
Property, motor vehicle and IT rental expenses have slightly increased by 2.9% to $609 million mainly as a result of higher rental
charges on our properties, including an additional 778 mobile sites domestically due to the expansion of the Next G™ network
footprint. Further, we incurred new costs in upgrading our Telstra Shops to the new and improved format T[life]™ stores in Sydney
and Melbourne during the second half of fiscal 2008. This was offset by lower IT rental expense as a result of the purchase, instead
of the lease, of a number of new servers and lower mobile site rentals within our CSLNW business in Hong Kong.
Other operating expenses have increased by 15.7% to $465 million mainly as a result of the impact of a review of booking practises
for parts of our Operations workforce where direct capital work labour is now being offset directly to labour costs. This is rather
than offset through capitalised indirect overhead within our other operating expenses.
Promotion and advertising costs increased by 8.3% to $457 million mainly attributable to additional spend within our core print
and online Yellow™ directory products to drive higher revenue and increase user awareness combined with the re-launch of our
White Pages® brand this fiscal year. Also contributing to the increase were higher marketing activities for our pre-paid products,
mobile search products, BigPond® music and games marketing, promotion of FOXTEL† by Telstra and FOXTEL iQ†, and the
re-branding of CSLNW’s One2Free brand and stores in the second half of fiscal 2008. This was partly offset by lower expenses
associated with our launch of the Next G™ network campaign last fiscal year.
Our impairment and diminution expenses including bad debts/doubtful debts and inventory write downs, have decreased by 7.2%
to $361 million in the year ended 30 June 2008 due to:
• lower impairment charges of $110 million relating to the Trading Post~ masthead which was impaired in fiscal 2007; offset
by:
• 29.8% increase to $251 million in bad and doubtful debts due to a deterioration in the ageing of our mobile debt portfolio,
higher wholesale customer provisions, including $15 million taken up against dealers that have gone into administration,
and a review of delinquency rates for our Sensis non-print business;
• 56.5% increase to $55 million in impairment of plant and equipment mainly due to costs associated with the retirement
of switching equipment and cancellation of some software capital projects as a result of transformation; and
• 24.4% increase to $50 million in inventory write down expenses largely linked to surplus stock relating to the CDMA
network migration and closure this fiscal year.