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Telecom NZ bunkers down in war zone

Telecom New Zealand's results briefing today was dominated by talk of cost-cutting and offshoring hundreds of jobs in Australia and New Zealand as the global financial crisis continued to hit the country's biggest telco.
Written by Juha Saarinen, Contributor

Clarification: We initially reported AAPT would offshore 385 jobs. The correct number is 350.

Telecom New Zealand's results briefing today was dominated by talk of cost-cutting and offshoring hundreds of jobs in Australia and New Zealand as the global financial crisis continued to hit the country's biggest telco.

Lots of Kiwis are on dial-up, and are happy with it

Telecom NZ CEO Paul Reynolds

A 59 per cent profit drop for the first half of the year to NZ$163 million on the back of a tiny operating revenue increase of NZ$10 million means Telecom is finding the going tough in a sluggish market with traditional voice business revenues continuing to fall.

Most Telecom divisions, bar Wholesale and infrastructure builder Chorus, have seen headcounts drop, the telco's CEO Paul Reynolds said today, resulting in 120 fewer staff, with more to go. Aussie subsidiary AAPT will shed 350 jobs through offshoring.

Contractor numbers throughout Telecom are also down substantially, with rates being squeezed as well, according to Reynolds, and external consultants and retail advertising are also being chopped. The closure of Telecom's failed online retail portal, Ferrit, will save some NZ$1 million a month.

For Telecom's executive team, the tough times spell the end of pay increases, at least for this year. Any pay rises are likely to go to front-line staffers instead. Nevertheless, Reynolds said he was optimistic about the future as IT services, broadband and internet provision continue to grow for Telecom, and were the star performers in the latest financial results.

New Zealand currently has 50 per cent market penetration for broadband. "Lots of Kiwis are on dial-up, and are happy with it," Reynolds said. Telecom will work hard to convert people from dial-up, using its successful "Street Fighter" door-knocking initiative.

The company's impairment charges include the NZ$33 million write-off of canned GSM equipment after Telecom decided to drop the first-generation mobile technology, to go exclusively with 3G WCDMA in the 850MHz spectrum instead. A goodwill write-off to the tune of NZ$68 million for Telecom's Australian subsidiary Powertel forms the remainder of the impairment charges, due to a big drop in carrying value.

As for the new W850 network, due to launch in June, Reynolds believes Telecom has the edge on mobile competitors — which in New Zealand means Vodafone only — due to fibre backhaul to access points. This allows Telecom to provide higher speeds than if using old-style telco backhaul technology.


Telecom NZ CEO Paul Reynolds
(Credit: Telecom NZ)

Reynolds also promised that Telecom will have several exclusive devices, and that it will deliver new services that the competition currently doesn't offer. Telecom has traditionally had around half of the NZ mobile market, which is at 110 per cent penetration, but this has now dropped to 41 per cent.

However, Reynolds wouldn't say if Telecom had changed its mind to wholesale the W850 network as well as the existing CDMA one. Presently, TelstraClear is reselling Telecom CDMA products and services but won't have access to the new W850 network in June.

Sorting out the "spaghetti legacy networks" is also on Reynolds agenda when building the Next Generation Network. He says this will be complicated but necessary.

The Telecom CEO was also aggressive on government regulation, claiming Telecom's investment in the telco sector amounted to 80 per cent of the total, and that it was "absolutely vital" that shareholders see returns on it. Reynolds said merit reviews of regulatory decisions are a must, to ensure that they're fair and equitable.

In the fixed line wholesale and infrastructure area, the picture for Telecom is mixed. Reynolds reported that the wholesale broadband business was flat, reflecting customer churn. Also, local loop unbundling means operators are putting customers on their own networks, as these come on-stream.

However, Reynolds was hopeful that new voice/broadband products with guaranteed quality of service would help Telecom Wholesale lift its game this year.

The infrastructure division, Chorus, has deployed 309 roadside cabinets as part of a large-scale fibre-to-the-node program. It is accelerating the deployment, with 100 cabinets a month being rolled out.

Thanks to the FTTN program, the average speed for 24,000 customers connected to cabinets is up to 13.3Mbps from 10Mbps, Reynolds said. Unbundling in New Zealand is going ahead at a slow pace though: a mere 46 exchanges, mainly in Auckland, have been unbundled, with only 25,000 customer lines. Reynolds believes many more exchanges will be unbundled this year. Chorus CEO Mark Ratcliffe said 15 exchanges a quarter would be unbundled "if there's the demand for it".

In IT services, Reynolds was very pleased to announced that Telecom's Gen-i had closed NZ$310 million worth of contracts, including deals with dairy monopoly Fonterra and the Ministry of Education.

As a side note, Reynolds brought up the recent merger between Hutchison/3 and Vodafone Australia. Telecom owns 10 per cent of Hutch, and the CEO said this was a "value-enhancing deal". CFO Russ Houlden said that while Telecom intended to keep its stake in the merged entity, it won't add any further money to boost the stake in Hutch.

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