Analysts split over Telecom's new strategy

The strategy unveiled by Telecom last Friday represents a degree of change which is unprecedented since the company was privatised in 1990, says Forsyth Barr analyst Jeremy Simpson.

Last week, the company said it would introduce Next Generation Telecom next year to offset the inevitable decline of its traditional fixed-line voice services - which make up over half its business.

"The profitable voice business is going to shrink under any scenario," chief executive Theresa Gattung said. "The parts of the business that are growing strongly are mobile and internet capability, while traditional sources of revenue, including dial-up and calling are declining."

The next generation networks would combine calling, mobile and broadband services for an all-in price, and be targeted at different customer groups.

"It is clear there will be significant costs in this transformation but it will end up with a leaner and more simplified corporate structure," Simpson said.

But others were more sceptical.

Goldman Sachs JBWere analyst Andrew White was doubtful that Telecom would be able to secure meaningful earnings growth or margin expansion in the next four years.

"In our view neither of these options appears plausible given Telecom's strong market position and world-class margins."

Telecom chairman Wayne Boyd said the company expected an acceleration of voice-over internet services to offset the static revenues in traditional parts of the business.

Telecom - which lost nearly $500 million this year - said the Next Generation would be a lower-cost business model and would precipitate growth opportunities.

Chief operating officer Kevin Kenrick said customers would sign up for a suite of services at fixed costs.

Gen-i, Telecom's internet business, would become its brand for delivering converged offerings to larger business customers, Kenrick said.

"Our corporate customers have been telling us they want to deal with one provider which offers the combination of IT and communication services and this is what Gen-I does."

Telecommunications User Association chief executive Ernie Newman said Telecom seemed to have a "genuine desire" to get back to a stable position by responding to customers' needs.