No sleep enhancement would have helped Penn with confessing to the half a billion dollar failure with Telstra’s first investment foray into a global tech business. Ooyala was the Silicon Valley video technology startup that Penn’s predecessor, David Thodey, chose to establish Telstra’s bona fides as a telco company with technology DNA. The exercise has backfired spectacularly. Ooyala was a video streaming company that in 2012, when Telstra made its initial investment, was a hot Silicon Valley ticket. Loading

The company’s technology was supposed to tailor video to the user’s device and, using big data, tailor the advertising in the video to the user - an apparent must for media and content producers. Needless to say there was lots of talk that it was to be the next YouTube. In 2014 Telstra took its investment to near 100 per cent. But only two years later , like so many digital disruptors Ooyala itself was disrupted as the technology game moved on. Media companies started using their own data and software - rendering Ooyala’s services redundant.

Telstra’s failure exposes a number of issues. The first is Telstra's inability to pick winners in the dynamic technology space. Having the largest cheque book is no guarantee of success. The second is the capacity of a large bureaucratic telco to nurture an entrepreneurial start up. The cultures are poles apart - Telstra is not nimble and has by its nature a limited appetite for risk taking. Telstra is a network based company - that supplies the pipes -albeit one that has found some success in growing its network application services business. Investing in its networks in order to retain superior service coverage and therefore its dominant market share is what it does best. But the pressure to transform from a telco utility to a technology company with growth prospects won’t go away thanks to the National Broadband Network - which has partly democratised telecommunications in Australia by increasing competition.

Loading Replay Replay video Play video Play video At the same time eaten into Telstra’s margins and will ultimately do the same for Telstra’s profits. Having said that it’s fair to assume Telstra won’t be taking too many more big Silicon Valley bets. While the $500 million punt was not financially large relative to Telstra’s $43 billion market capitalisation and won’t meaningfully damage shareholder dividends, its technology credentials will suffer and that it a real concern. When Penn stood before investors last November he was well aware of the challenges Telstra faced with its investment in Ooyala.

The value of this investment had already been written down once and clearly its prospects had not improved. His take on being a technology company had morphed somewhat. Investors are more concerned about the core business of selling data packages rather chasing than Silicon Valley blue sky “Two years ago, we announced our vision to become a world-class technology company that empowers people to connect," he told investors. ''I want to reinforce the point here, that this is not about moving away from our origins of being a telecommunications company. Quite the opposite. It is, in fact, because we are a telecommunications company and because technology innovation is changing our industry that we need to build new skills in new areas. It is often said today that every business in every industry needs to be a technology company, but this concept has special meaning at Telstra.'

"As you have heard me say before, the traditional worlds of telecommunications and computing are converging. What I mean by this is that there is no technology innovation that is happening today that is not intended to be connected, whether it’s drones, driverless cars, cloud computing, high-definition video streaming, augmented reality, or the Internet of Things. All of these applications have one thing in common: they all rely on high quality, fast, reliable, and secure telecommunications networks.'' Telstra may have to nurse the damage to its technology credentials but shareholders - who are far more concerned with dividends - barely flinched. The share price wasn’t damaged by Friday’s announcement, which suggests that investors are more concerned about the core business of selling data packages rather chasing than Silicon Valley blue sky.