Telecom needs to keep innovations flowing fast

16:00, Dec 16 2013

Telecom's year seems to be ending pretty much as it began with its YahooXtra email service in disarray, marketing confusion and lots of talk about transformation.

The company originally decided to target its Skinny mobile brand at "youth", but after either failing or belatedly realising that people were smart enough to figure out that a sim card was a just sim card, it decided in May to broaden the brand's appeal.

Now its television advertisements promote Skinny as "the same, just lower prices". Is that the same as Telecom which has also been advertising a sub-$100 Android smartphone "only on Telecom prepay"?

Some within Telecom insist the company's "multibrand strategy" is proving successful and I look forward to being proved wrong by the company's top-line at its next half-year results. But it doesn't seem a great idea to insult the bulk of your customer base. Telecom's new digital ventures unit is experimenting with same discount-brand concept for a new fixed-line broadband brand, "Big Pipe".

The company's existing broadband users, many of whom were unable to send or receive emails last week and who have repeatedly had their YahooXtra accounts hijacked and used to send out malware-infected spam this year could be surprised to find out Telecom regards them as being on any kind of frilly, premium service.

To be fair, Telecom has greatly improved the value-for-money of its broadband and mobile offerings after chief executive Simon Moutter decided to draw a line under the gradual decline in market share presided over by predecessor Paul Reynolds.


Its move this year to provide its mobile customers with a gigabyte of free wi-fi each day from its network of public phone booths has also proved popular. But it needs to keep the innovations coming at a cracking pace.

Without better execution and without YahooXtra standing up for a long spell, Telecom will find itself sacrificing margins just to stay still as it stands on the ledge of a dangerous transition into ultrafast broadband, when most consumers' business will be very much up for grabs.

While some insiders insist morale is high, there are also suggestions of internal strain. Skinny boss Paul Taylor has resigned. There are rumours retail boss Chris Quin is feeling a bit of heat. The company has described itself as being in a state of transformation for many years, but at each annual results presentation the good news seems around the next corner.

According to Moutter, the current journey will turn Telecom into "a future-focused competitive retailer of digital services and applications".

Aside from an experiment to resell English Premier League matches, streamed online, to its broadband customers, progress towards fattening-out Telecom's product set does seem skant.

The alternative, Moutter said, was for the company to become "nothing more than a seller of big, fat dumb pipes". That must be an unappealing prospect given Telecom no longer owns most of that piping following the company's structural separation from Chorus.

Moutter said that in going for the ambitious option, Telecom had chosen "the more-challenging course". And that is half true. It is the more challenging course to complete successfully, but perhaps the easier one to embark on.

The hardest thing for any board of directors or management team to do is to accept that their business is not going to be as big or profitable as it was, recognise that won't change, and set their strategy accordingly. It is also never a course that is going to be in their personal interests.

Kordia faced that choice several years ago when it saw its revenues from broadcasting transmission were going to be slashed by the switch from analogue to digital broadcasting.

Naturally, its directors decided to back themselves and expand into the telecommunications market, with what ultimately proved to be mixed results.

Trade Me is also perhaps approaching a similar juncture as it flails in its bid to establish itself as an online intermediary for major consumer goods brands and encounters growing resistance to fee hikes.

Chairman David Kirk said at the company's annual results presentation in August that its board was "still very focused" on achieving earnings growth each year. But there will come a time, perhaps sooner rather than later, when that could become unrealistic and even damaging.

For Telecom, 2014 needs to be year in which all the progress it claims to be making internally actually becomes visible from the outside, if it is to pursue a growth agenda.