Telecom chief's departure no surprise

04:08, Aug 31 2011
Paul Reynolds
DAMAGE CONTROL: Paul Reynolds appears in an advertisement for XT, following major problems with the network.

Telecom's departing chief executive Paul Reynolds has led the company through huge change over the past four years.

Reynolds' departure was widely expected, but not the timing of today's announcement, which was made now to clarify the leadership during the leadup to Telecom's de-merger later this year.

Reynolds - who did not want the company to structurally separate - had succeeded in meeting the milestones imposed by the Government, some of which carried high penalties, IDC telecommunications research manager Rosalie Nelson said.

He had also managed the company through a "maelstrom of change, when irresistible market forces were meeting immovable politics", she said.

When Reynolds came onboard in September 2007, Telecom was fending off attacks on all fronts. Fuelled by public dislike of the telco's monopoly, the former Labour government introduced reforms in 2006 to split it into three units, known as operational separation, and open its network to rivals.

This government-enforced regulation wiped $2 billion off its share price and sent its earning in to decline.


In October 2007, Reynolds' first major announcement was to unveil the company's $1.4 plan to roll out broadband fibre to urban centres within four years.

Reynolds then led the company through operational separation which was completed in 2009.

On May 5, 2009, Vodafone sought a High Court interim injunction to stop the launch of Telecom's $574m XT network, over interference claims.

Telecom and Vodafone reached a confidential out-of-court settlement the next day, and Telecom launched XT on May 29, 2009.

However, the XT network crashed four times, forcing Telecom to pay out compensation to tens of thousands of customers The company's chief transformation officer Frank Mount, whom Reynolds had hired, resigned and the Government called for a report on the fault.

In March 2010, the Government released further details of its $1.5 billion ultra fast broadband plan for 75 per cent of New Zealanders, which effectively meant that Telecom couldn't provide fibre and a retail service on top.

Communications and IT minister Steven Joyce said Telecom had two choices - to structurally separate (sell off its network or retail operations) or to put all its network assets into another company of which it doesn't have majority control.

But Reynolds ruled against structural separation.

In April last year, the company downgraded its earnings guidance by $100 million, said it would cut 200 management jobs and forecast further cuts to its 8,000-strong workforce.

Last year, Telecom said it would structurally separate its network and retail divisions in late 2011, subject to shareholder approval.

In May this year investors reacted positively to the news that Chorus had scored the bulk of the Crown's ultra-fast-broadband $1.5 billion contract, and would roll out fibre to 24 regions.

The company will begin a search for Reynolds' replacement during 2012.


Forsyth Barr analyst Guy Hallwright said Reynolds had done a good job given Telecom had been through an extremely tough time over the past few years.

Reynolds was hired in 2007 to oversee Telecom's split in to three units - retail, wholesale and a network division - called operational separation. Hallright said the Government forced Telecom to go through this process.

Then the National government changed the game plan for Telecom when it announced its plan to rollout ultrafast broadband fibre to 75 per cent of New Zealanders.

The Government stipulated that any local fibre companies who supplied fibre couldn't offer retail offers on top.

In order for Telecom to have a part in the plan, it had to structurally separate its retail and network division.

"Given these headwinds, Reynolds has done a good job," said Hallright.

The lift in the company's share price was partly testamony to Reynolds' good leadership, he said. Telecom's share price has crept up to $2.75 from a low of $1.85 in 2010.

The market reacted positively to the news that Telecom would pick up the bulk of the Government's contract to roll out fibre, said Hallright.

IDC telecommunications' Rosalie Nelson said Reynolds wasn't a one-man band in managing Telecom's transformation. Other Kiwi "stalwart" executives such as Chorus chief executive Mark Ratcliffe and Gen-I chief executive Chris Quinn had also managed its change.

Reynolds, who was British Telecom's wholesale chief executive, hired a team of ex BT executives such as Frank Mount and Paul Hamburger, who had short tenures.

The market would be comforted by the fact that Telecom had indicated there would be a managed succession, she said.

Telecommunications Users Association of New Zealand chief executive Paul Brislen said it was expected that someone of Reynold's calibre, who had been running a fully integrated Telecom, would look to a similar role elsewhere.

''It's good that he's staying on through the transition (the demerger process). Given the changes to the Telecom board, it is important that we have some leadership through that period.''

''The question is who who will be up for running Telecom Retail post 2012/2013?''

Telecom was a business that had gone through massive transformation from a fully integrated provider to a company split into different units.

Telecom Retail looked like a replica of Vodafone New Zealand but bigger, he said, with a broadband wholesale business, a tolls business and its own mobile company.