TelstraClear chief executive to quit

TOM PULLAR-STRECKER
Last updated 15:37 30/10/2012

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TelstraClear chief executive Allan Freeth will quit on Thursday following the completion of Vodafone's $840 million acquisition of the company tomorrow.

Chairman Gordon Ballantyne said TelstraClear had grown from "a fledgling challenger to a major profitable player" during Freeth's seven-year spell at the helm.

The Commerce Commission has unconditionally approved Vodafone's purchase of TelstraClear, a decision the Green Party says will reduce options and push up prices.

Co-leader Russel Norman noted the terms of the $840m takeover included a clause that would prevent Telstra re-entering the New Zealand market for an undisclosed period.

“Make no mistake – Vodafone's move is about eliminating competition," he said.

“We've seen it in the banking sector, the insurance sector, and now it's happening in the telco sector. Vodafone's takeover of TelstraClear will inevitably lead to higher prices for end-users, businesses, and government.

“It's not in the long-term interests of the New Zealand economy for our primary competition regulator to be eliminating competition in the telecommunications industry.”

However, the commission said it did not find any significant business overlap between Vodafone and TelstraClear in the provision of either mobile phone services or fixed line services to large businesses.

Chairman Mark Berry said the merged entity would continue to face competition from Telecom, as well as Orcon, Slingshot and other smaller businesses in providing services to residential and small business customers.

As a result, the commission was satisfied that the proposed acquisition would be "unlikely to substantially lessen competition in any of the relevant markets”, he said. It will spell out the reasoning behind its decision in more detail in a few weeks. The Overseas Investment Office said in a separate announcement that it had also approved the takeover.

Telecom's share price has gained 1.7 per cent or 4 cents, to $2.42 today. Chief executive Simon Moutter said it knew from past experience "how potentially distracting significant operational change can be to an organisation and to their customers" and Telecom was poised to take advantage of any opportunities.

"We're keen to engage with any prospective customers who may be unsettled by the Vodafone-TelstraClear merger and want choice in their telecommunications company,” he said.

Gartner, IDC and Australian analyst Paul Budde have all speculated the sale of TelstraClear could clear the decks for parent Telstra to take a tilt at Telecom at some time in the future. However, no such move could be imminent because of the "non-compete clause" referred to by Norman.

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Vodafone chief executive Russell Stanners said the approval from the Commerce Commission was "still sinking in".

"It is an exciting day for our customers, Vodafone and the industry in general."

Stanners said he learned of the regulatory approval by text message while interviewing candidates for some senior roles.

Vodafone would complete the purchase of the Telstra subsidiary tomorrow, he said. "We took the opportunity to proceed in parallel with the commission because customers were anxious and for employees - particularly TelstraClear employees. We want to provide certainty as soon as possible."

Stanners said in July that while there would be job reductions from pooling "back office functions" such as legal services, the merger would not result in mass redundancies among Vodafone's 1900 staff or TelstraClear's 1300 employees.

He today reiterated that assurance. "We are buying TelstraClear because we value their people, experience and industry knowledge. There are duplications but we are absolutely not here to talk about job cuts. We are here to figure our how we can redeploy people - how we can grow this business."

Stanners said TelstraClear would continue to operate as a "standalone" businesses for about six months "just so we can get to understand both businesses and figure out the best way to bring them together". The full integration of the companies - under the Vodafone brand, "business model" and Stanners' leadership - would take about 18 months, he said.

"What we have got now inside one business is the leader in mobile and the leader in the delivery of broadband and fibre services. We have got more high-speed broadband connections in New Zealand than any other player." That was thanks to TelstraClear's high-speed cables networks in Wellington and Christchurch, he said.

Telecommunications Users Association chief executive Paul Brislen said the lobby group would have liked to have seen "some kind of monitoring regime" put in place for the merger to "ensure no cosy duopoly could emerge".

Brislen said yesterday that the lobby group had thought long and hard about the ramifications but was hopeful the takeover could lead to a more "dynamic and interesting" market.

"On the one hand we have a reduction in competition as our top-three telcos become two."

But the upside to the deal was it would finally create a competitor that could "take on Telecom in the fixed line market", he said.

The merged firm will have about a 29 per cent share of residential broadband connections, versus Telecom's 49 per cent, and annual revenues of $2.4 billion.

- BusinessDay.co.nz

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