Moutter confident of igniting right Spark

TOM PULLAR-STRECKER
Last updated 05:00 22/02/2014

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Telecom's decision to change its name to Spark in a few months has eclipsed an interim result that analysts described as slightly disappointing.

With a price tag of about $20 million, the rebrand will be the most expensive since Shell's service station business was rebranded as Z Energy at an estimated cost of $35m in 2011.

Chief executive Simon Moutter said a new name had been on the cards since the mid-2000s when the idea was discussed "many times" by former boss Theresa Gattung.

The Telecom brand was associated with its "humble home phone business", he said.

"There was always going to be a time when we needed a name that was more representative of the future business we are in; mobile, digital, data, television and entertainment."

But Moutter said it had made sense to wait until the company was on a positive track, which he was confident it now was. Telecom reported a 2.5 per cent rise in net profit to $167m for the half year to December 31, while revenues fell 3 per cent.

But Moutter said the major points of interest in financial result were that Telecom now believed it could cut its costs by an additional $100m a year through its attempt to re-engineer and simplify the business.

"We are increasing our previously advised expectation of benefits from $100m to $200m a year to $200m to $300m as we move into the 2015 financial year," he told analysts.

Telecom was also "on track" to achieve a 1 to 2 percentage point increase in its share of mobile market revenues, he said, describing that as "a big deal".

Telecom had added 108,000 connections in the later half of 2013 while Vodafone had seen its numbers fall, he said.

Telecom had "absolutely" stabilised its share of the broadband market after years of decline, he said.

Deutsche Bank analyst Arie Dekker said it was encouraging Telecom had made gains in the mobile market and held its share in broadband, but the latter achievement had come at the expense of customers switching across to less profitable broadband plans.

Overall, the half-year result was "slightly disappointing" and had just missed expectations, he said.

Telecom's shares closed down 4 cents at $2.375.

Massey University marketing professor Malcolm Wright believed Telecom was doing the right thing changing its name.

"Its existing brand is anchored in 20th century technology. It does have a lot of ‘equity', no question. But it also has some negative associations as well," he said.

"The fact is their business is changing hugely. They have relied over the years on billions in revenues from fixed-line phone rentals and national toll calls and that business in obsolete; it is a walking zombie.

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"It is not a bad thing to break with the past and re-energise their own staff and customers and say they do have new things to offer."

Moutter said its newest such thing, internet television service ShowmeTV, in which it will invest about $20m a year, was a long-term play. "There is no way an internet-TV business is going to be cash-flow positive in five minutes. It is a decision to invest in the future."

But he said the business case was for ShowmeTV to "wash its own face in a reasonable time and be profitable in due course".

It would have a spin-off in increasing demand for broadband, he said. He indicated Telecom was not likely to be able negotiate cheaper content for the service from studios in return for sharing revenues with them.

- BusinessDay

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