AAPT fires first shots in assault

By PETER GRIFFIN telecoms writer

After an $850 million writedown and extensive restructuring, Telecom's troubled Australian arm AAPT is again pitching itself as the aggressive challenger in the telco market across the Tasman with a new marketing campaign.

The company is in the opening stages of its first major marketing campaign in two years, and is targeting a million customers it claims would be better off switching providers.

AAPT hopes to add to its 450,000 fixed-line customers by offering line rental discounts to those ringing up a bill of at least A$75 ($83) a month. A user spending A$100 will get a A$24.90 line rental charge cut in half, and someone spending A$200 will have line rental rebated in full.

Other deals promise to match competitors on long-distance calling and offer weekend flat-rate deals for calls within Australia and to New Zealand.

AAPT's acting chief operating officer, Marko Bogoievski, who also juggles the role of Telecom's chief financial officer, says the deals are all about attacking the "inertia-driven" philosophy of the incumbent Telstra, which was using just enough discounting to dissuade a customer from seeking out the competition.

Telstra had received clearance to raise access prices in parts of its business to A$31 a month, from about $25 a month, but would offer discounts to soften the blow, he said.

"They're essentially squeezing the second and third-tier players by tackling long-distance pricing and introducing aggressive bundles into the market. But they're not giving back as much as they pick up in increased access pricing.

"Any analyst report will note how positive that equation is for Telstra."

Bogoievski describes it as an "essential strategy" for an incumbent to follow, but one that gives new opportunity for alternative carriers to cherry-pick some customers.

There are other reasons AAPT thinks the time is right to go to the market with a high-profile pitch for more customers.

"There's good demand for an alternative brand. Our gross margins, our carrier relations with Telstra and Optus and our infrastructure are in much better shape now," says Bogoievski.

But Telecom has also spent the past 18 months trying to stabilise AAPT's finances, in the face of severe market criticism of the inflated price Telecom paid for the telco.

AAPT has shed thousands of unprofitable customers, forcing them to move off its network through price rises. It aggressively cut costs and reduced headcount.

The result, however, was that AAPT stagnated as a brand. It disappeared from Australian TV screens where its cheap calling deals had previously been extensively pitched.

AAPT ads are now again screening prime time, in a multimillion-dollar campaign.

Telstra, in good incumbent fashion, has responded with a print ad campaign knocking the deals.

The major carriers have also been upping the rhetoric in the mobile market to coincide with last week's launch of Hutchison 3G (third generation) service.

AAPT's stake in the Hutchison venture will give it "attractive terms" to sell the 3G services to its 300,000 mobile customers.

"Telstra and Optus have tried to confuse the customer about what 3G really is using is their own 2.5G technology," says Bogoievski. "They've also increased discounts across a bundle of services.

"We don't have a particularly attractive offering now through our Vodafone relationship. Hutchison fills a gap in our product offering."

Those interested in AAPT's new deals will typically be high-use customers who are not looking for a bundled package providing everything.

"You have to have a spare five minutes at night to look at the value we're offering before you'd choose to sign up with AAPT."

The aggressive approach will be less visible, but just as strong, in the business end of the market, he says.

"We don't need 20 per cent share to be successful in this market. We just need some momentum in our business division.

"If you do it right, you can see attractive returns reasonably quickly. But there's a lot of capability that has to be put in place."

The cheaper deals would still reap good margins for AAPT, which traditionally has been slightly cheaper than many Telstra and Optus long distance services.

"As soon as we get a local call through our switch, on to our fibre backbone, you start making reasonably attractive margins," says Bogoievski.

"The only part of the puzzle that is not attractive is local access resale, where you reach Telstra's copper."

As the campaign gains momentum, AAPT will actively seek a new leader to take the company forward - Bogoievski's role will be a temporary one lasting a few more months.

Shouldering two of Telecom's key positions has not fazed the man who travels back to Wellington from AAPT's Sydney headquarters every weekend to be with his family.

"The reality is I have a bloody good team ... I sleep pretty well."