Editorial: Network failure a test for Telecom

OPINION: Paul Reynolds has been head honcho at Telecom for two and-a-half years now.

Time enough, you would think, for him to have stamped his mark on the place – set up his own structure, shuffled positions to ensure underlings he trusts are in the strategic positions, articulated the "vision" that he and the board share for the company and locked in the strategies to get there.

His company might not be New Zealand's biggest (Fonterra) and its business focus appears less problematic and complex than that of the international dairy giant, but the Telecom board was so convinced that Mr Reynolds was their man they offered him well over twice his previous salary in order to secure him. Last year, his $7 million salary, bonus, travel and accommodation allowance, plus share entitlements package was approved by his board in the face of slipping profits and a reduction of almost a third in the real value of the company's shares during his time in charge. Just halfway through the current financial year, the board already has two damaging failures in the company's top-drawer XT network within the past two months to consider before signing off the CEO's performance targets-based package this year. The faults might not be directly attributable to the lanky Scot's failings. But as CEO, the buck – $7 million-plus worth – stops with him.

As stories in Nelson Mail Weekend illustrated, there are consequences when communications networks fail. A woman stuck in her car tried in vain for an hour to summon help after falling ill in Wellington, ultimately being admitted to hospital. Relatives looking for missing Nelson teenager Leo Lipp-Neighbours reported that their search was being hampered by the fault. Some businesses say they have been hit hard.

Mr Reynolds has dismissed suggestions that Telecom's network is not up to speed compared with rival Vodafone's "third generation" system. Telecom has only two main exchanges, or radio network controllers – though it has been claimed that it had originally planned to build five. Vodafone's network already has six. Apparently, more RNCs would not have prevented the fault but might have limited the damage to fewer customers.

The multi-million dollar question now is how much the XT brand has been damaged by two failures: one before Christmas and last week's. It was launched with typical marketing fervour and lauded as a champagne system – but the latest problems must have drawn off much of the fizz. Mr Reynolds has already launched an independent inquiry into the failure, and says the company will make an announcement on possible compensation for disaffected customers this week.

The company will have to work hard to convince potential customers that the problems have been mere glitches that will not recur. It might also have a battle to retain existing customers, although its two-year and five-year XT contracts are robust and should prove difficult to break. It will be interesting to see what consequences there are for Telecom – including for its CEO.

- © Fairfax NZ News