Telecom and endless noise
Telecom is the one New Zealand company that we have all been brought up to hate.
In 2006 Labour tried to use this to win popular support with the people. I railed against that at the time, and the actions of David Cunliffe, Michael Cullen and Helen Clark.
I submitted to the Select Committee that it was immoral to interfere in this way with the property rights of investors.
Though they, of course, ignored me, my oral analogy went like this:
"Well guys, think of this way. You sell me a house, a run down shack on a reasonable site. You want to ensure that the site is used for the benefit of the whole town, so you have to decide if you want to put some strings on the sale.
“You get a valuation and you are told that the strings you propose on the sale will cost you billions of dollars on the sale price. Instead you sell me the house with very limited strings attached and take the higher price.
“It is now my house, I am proud of it, I spend new capital and I retain earnings to do the house up, I make it nice, I add on some extra bedrooms and increase the capacity of the house, Now the house looks nothing like the house you sold me.
“You look at this house and you are jealous of this new dominant house on the corner block, and you want the house back, but you can’t just take it, that would be seen as bad, so instead you come to my front door and tell me that a bunch of freeloading squatters are going to move into the spare rooms and they will not be paying me a fair return on my rooms. And this guys, is exactly what you are proposing to do to Telecom”
Lockwood Smith, who has a sense of humour, said: “You should talk to Hone, he knows what squatters are”.
My reply, which in my best tradition was rather non PC but totally prophetic with the benefit of hindsight, was “Hone thinks all except Maori are squatters in NZ”.
I went on to say that the Government was misguided in its statement that beating the crap out of Telecom would in any way increase the capacity of telephony in NZ, How does it make sense to smack around the one company that spends over 80 percent of the total spend on telephony and hope to get a world class network?
Now, in the final irony of all of this, the Ministry of Economic Development had a capital markets conference before all of this in late 2005 which I attended. One speaker from one of the two substantial brokers said, “Listen guys, NZ lacks the market volume to sustain any capacity to do any research or analysis, it is market liquidity that gives us the income to pay people to do research and analysis.”
He went on to say that NZ had only three companies with any volume and if anything happened to any of these three companies there would not be enough volume to justify running a NZ operation and that they would just move them to Sydney. The three were Telecom, Fletcher Building and SkyCity.
And the dumb politicians who heard this then went on to support the dismembering of Telecom oblivious to the impact on our capital markets, having been warned and not caring.
Now sure the broker in question is still operating in NZ but they have cut back their research output. I guess that the bulk of what they do now comes out of Sydney. Guess what research was identified as one of the main things by the current task force that has to be fixed?
I talked to Wayne Boyd after the outcome was known. “Wayne, if you had a majority market share and your customers loved you and you had 500,000 NZ shareholders you could never have been touched by any government. Your mistake has been not taking the people with you as customers and investors.”
I then wrote the thought piece Vision Leadership and Governance.
Theresa Gattung is right, it is substantially the government action from 2006 to now that has caused this mess. It is time for governments and the people to stop treating Telecom as a political football or a tall poppy to be mown down.
Understand this NZ , if Telecom fails it will be a bigger disaster for NZ on many levels. If it fails we will not have world class communications, our capital markets lose a huge amount of liquidity, investors will lose billions and confidence in NZ as a destination for capital will be shot.
There is a lot at stake with Telecom. I hope Bill English and Steven Joyce understand this. It is time for the media and government to leave the company alone to finish a successful roll out.
Now to Gattung. Her book will be an interesting read no doubt, but it does depreciate her own brand to be taking pot shots at her successor’s pay, even if she is right.
Gattung was a successful CEO at Telecom given the hand she was dealt. She was in a constant state of war to protect her house from the squatters who wanted to move it, and her team became a team that reflected that.
She held up both revenue and profits during her reign having inherited from Roderick Deane a fully optimised business, and a pup in the form of AAPT. She also inherited a board of Roderick’s design, and some have said that for a period of time Gattung was a puppet on Roderick’s string. Who would know, but that was certainly not the case by the end of her reign as top dog at Telecom.
She is a striking person, capable, intelligent and with extreme energy levels.
Now to Paul Reynolds. At the time of his appointment, Telecom needed a new approach, a new culture and a new leadership style to cope with the squatters that had moved into the house. Thus it would not have been appropriate to promote from within.
A change is a change and outside appointment was the only logical decision for the board to make. Could an appointment have been made from somewhere in NZ? Did we have to recruit international talent? That is the next question.
Well yes, we did. How many CEOs do you think we have in NZ with telephony experience of Gattung’s calibre? One, and she had just gone west. So it was inevitable that Telecom would have to recruit from overseas. If you want an international commodity you have to pay an international price. In fairness his base salary in pounds is not a lot.
Reynolds’ job was to win back customer confidence. He tells me that Telecom’s customers are not jumping to Vodafone or anyone else. They understand that XT is worth the wait, is largely functioning and Telecom just has to make it work, as they will and always have.
Reynolds’ mantra from the beginning has been look after the customers and everything else looks after itself. His operating style is to take the flak, front up say what he will do and then do it, even if what he proposes to do doesn’t always work. That is called risk.
Gattung’s comment that she thinks it inappropriate that wages have gone up while profits have gone down is fair to a point, but what we are dealing with is a business in reconstruction mode. It is rebuilding itself for future profit, Any long tem investor knows that profits fall as reinvestment expenditure hits the revenue account before it recovers and profit resumes.
It is wrong to judge Reynolds in this situation on a quarterly, or even annual result. If he doesn’t turn the ship meaningfully within three years then either he is a total failure or the ship was sinking anyway, and if it does sink, so does NZ on a number of levels. This is the burden on Paul’s very broad shoulders.
I met with Paul last week. He said for all the noise, Telecom is still gaining market share, and has substantially succeeded in rolling out its XT solution.
He said many of the complaints are the usual post-installation teething problems that any new project has, unfortunate though they are. Of course some of the outages have been compounded by human error.
He told me a story of an outage in the UK while he was at BT. Over 2 million users were out, it was major. All the suppliers went down at once. The market understood then that where BT went, everyone went. It happened because of a fire in an old air raid network where the fibre optic was run.
It was news for a day, and then it stopped, and BT got on with restoring services to its customers and was applauded for it. It took three weeks. This is the difference with NZ in a nut shell.
So all, just shut up and give the man a break.
*Disclosure: Bruce Sheppard owns Telecom shares.
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I agree that Telecom going down would be a huge blow to NZ. However XT was a major disaster for Telecom. They really should have rolled XT in in smaller phases.
Its sad that dr reynolds is being targetted for all the wrong decisions,and the milking of it by, all the previous management,and sadly the treatment from an individual Labour minister,with the full support of the PM and cabinet,
Newzealand may be in the process of loosing its own Baby in telecom,and hence allowing aal the rest foriegn owned companies to loot us ,as in the Banking industry.
And I sincerely hope there is complete inquiry how the telecom sector works in NZ, especially VODAFONE which is infact not far away from problem,as its also having issues,but managing to make money for its parent compnay and also a handful of Top level,
49cts a minute doesnot exist in developed world,may be in African countries,thats we pay them,
I think New zealanders should by now smart enough to understand that we as Country should have our Very Own players in every sector,and see that we r not screwed for charges,as its happening now,
The Govt should come forward to help enterprise raise Capital in the Equity market giving Tax breaks, to those who subscribe to this equity,
We certainly need our Own Companies to be there in every sector,and get the best rates,
hope wisdom prevails and few media reporters dont misleed the NZ public,for their own gain, or acting on behind the doors for all thode companies who wants to make sure NZ Companies do not exist,
All New zealanders should be smart thinking now""
Blair, more of us need to give a toss, becuase if collectively we dont, then the outcome will be very unkind to us all. .
Not sure I'm convinced, Bruce.
Your three "star" companies are all virtual monopolies and certainly two of the three are sectors in which NZ consumers pay excessive prices for their profitability.
A decade or so ago I was appalled that the cheapest way to buy a house lot of NZ building timber was to buy it from an Oz company whereupon it crossed the Tasman twice but was then much cheaper than buying the equivalent that hadn't.
Likewise Telecom today erroneously disconnected one of our local broadband connections retailed by a competitor and doesn't seem in any hurry to remedy it, so they don't do their own cause much good.
Kris #3: In the eyes of most NZers, Telecom wasn't a NZ company, but a foreign-controlled one.
Regarding XT, what about Alcatel-Lucent's inexperience compared with the likes of Ericcson and Nokia Siemens in building 3G networks?
Bruce: Yes, Cunliffe was responsible for Telecom's share crash, but his hand was forced; the blame lies with Deane, Shirtcliffe, et al, who skimped on infrastructure and customer service. I do agree on Dr Reynolds - he's merely cleaning up the mess left by Telecom's previous management.
As Gareth Morgan - no raging socialist - said of Telecom in 2005, "There’s only one thing worse than a legislated State monopoly, and that’s a private one. " (http://nbr.infometrics.co.nz/corporate--power--of-the-year_1043.html) So the whole issue is much more complex than just plain old tall-poppy lopping.
It not clear that folk commenting here thus far has understood Bruce's point.
Here's an analogy: in the opinion of the French, Australians and the English, the All Blacks win too much. So to make things "fair" for the other teams, the IRB majority-votes to have the All Blacks wear weighted dive belts during matches and play all their games overseas. That is what governments have done to Telecom.
Vodafone email is down as we speak. Let he who is without technology cast the first stone.
Theresa Gattung was up to her neck in the AAPT debacle, she didn't merely inherit it. The purchase was in year 2000. She took the helm in 1999.
I have sympathy for very little that the laour govt did, but their dealings with this leech Telecom on NZ business, consumer and society had my full support. No country in its right mind should allow monopolists in charge of any important business. And monopolists are what they are through and through - do you remember their response to the early signs of competition, the rollout of Clear communications fibre along the Kapiti coast Telecom used what I would call (but the law didn't at the tiem)predatory pricing to reduce Telecoms own charges just in those areas where Clear had a network - and the government of the day allowed it.
Sheesh, all attempts by this company to engage in any market where there is competition have been abject failures - AAPT, Ferrit, the pay TV thing.
Theresa was doing pretty well at $2m for a job that wasn't much more difficult than summing up the costs of operation, adding desired profit and dividing by the number of customers in order to work out how much to charge everybody.
Phil
Bruce, you say that protective conditions should have been built into the original purchase price. I agree. Any future privatizations need to build in the cost of fixing the mess after shareholders have extracted all possible value. Telecom may not have made as much of a mess as the dilapidated rail system Labour had to buy back, but they've cost NZers a fortune.
Example: before privatization, NZPO laid fibre down my street (in Auckland). A loop was left at my veranda, ready to be brought inside. Then the privatization occurred. The loop sat there for years. The ex-NZPO guy driving the fibre project quit Telecom in disgust. Eventually the loop was cut off by a gas worker who didn't know what it was. And now the government is looking to invest megamillions of taxpayer money to get a fibre network because the incumbent saw no business reason to do it, or even to finish parts that were largely complete before the infrastructure deteriorated.
It is inescapable that NZPO would have had a city fibre network by now, owned by the taxpayer, at no additional cost to the taxpayer. You may label that "tall poppy syndrome" but labels aren't as impressive as seeing what happens in real life. Against this is the expectation that we must respect "investor property rights" despite the demonstrated erosion of vital infrastructure even if they can act as a monopoly and overcharge.
Seems to me it might be smart to let Telecom "fail" so we can pay a distressed price to buy back the infrastructure. If that kills our capital markets and we care about that, then lets merge with Australia and be done with it.
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Most of us don't give a toss, we'll just choose who offers better service and Telecom have been dragging their feet forever and adting like a govt department whos now a private business, no surprises their except for their ineptitude and arrogance.