Can Telecom survive?

Auckland's Town Hall was the scene of Telecom's XT launch. Photo / Supplied

The XT network, launched at a lavish bash at Auckland's Town Hall last May, would bring Telecom into the future, the company said.

It replaced older mobile technology that even former CEOs Roderick Deane and Theresa Gattung now admit - in hindsight - was the wrong choice.

The accompanying advertising campaign was fronted by Top Gear's Richard Hammond and promised that a "new era in New Zealand's telecommunications is at hand".

This "new era", and its frontman, are now best known for spectacularly public crashes. Hammond lost control of a jet-powered Vampire drag racer at 463km/h during filming for his show in 2006, and the XT network fell over causing major outages in December and January. This week there were further disruptions to service in Hawke's Bay, Invercargill, New Plymouth and the Hutt Valley.

Even Gattung has been having trouble with the new network. She says calling hasn't been an issue - at least when she was Australia. "On the whole I've found XT better for roaming, but not so good in New Zealand. That's where it's at, at the moment," she says.

While the problems with XT dominate the headlines, they mask a deeper malaise within the company. This month Telecom slid off the number one perch it had occupied on the NZSX since the company was floated in 1991. On February 2, Fletcher Building edged out Telecom, becoming New Zealand's biggest company.

The slide in the share price - down 80 per cent since its peak a decade ago - is humbling for a company that once dominated the market and served as a proxy for the entire New Zealand economy for many international investors.

CEO Paul Reynolds, appointed in 2006, has had to repeatedly apologise to angry customers over XT failures.

The mobile phone madness of the past two months will weigh heavily on Reynolds, says Ernie Newman of the Telecommunications Users Association of New Zealand: "He's hurting. He takes it very personally when things go wrong. I think it's one of the most difficult times of his career. I'm impressed with the fact he's handling it and fronting it - even if blurry eyed," Newman says.

Despite repeated requests throughout the week, Reynolds was not available for an interview with the Herald on Sunday for this investigation. But he has been scored by a panel of four market commentators as having made a fairly good fist of steering a company that faces monumental challenges.

These challenges come from competitors, changes in technology, as well as Government decisions that stripped Telecom of its near monopoly in the sector. The year Reynolds took over, the Government forced the company to split into three divisions (retail, wholesale and network), and last year the Government committed $1.5 billion to build a new fibre-optic network. That will replace the Telecom-owned copper lines that underpinned communication for the better part of a century.

While Telecom is in the running to build the new fibre-optic network, it is only one of several competitors.

Newman says Telecom's involvement in maintaining ownership of infrastructure is crucial. "It's a bit of a do or die for Telecom," he says, before pulling back slightly: "There's a lot at stake, a great deal at stake."

The costs of splitting the company, and the race to build a replacement network, are big problems - but not of Reynolds' making, says Computerworld editor Rob O'Neill. "A lot of these are legacy problems. It was a fix-up job, and he's has been the guy there."

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Gattung left Telecom in 2006, and hasn't spoken publicly about the company since. Next month she releases her memoir Bird on a Wire through Random House that details her time with the company. While she declined to comment on the performance of her successor she defended her time at the helm. "There was a survey done in Australia that measured performance for the five years to the end of 2007, and Telecom had the second-best return for shareholders - behind Fletcher Building."

She preferred not to directly address the political battles that led to $3 billion being wiped off Telecom's market valuation after the unbundling announcement. "It's totally and thoroughly covered in context in my book."

The pressures from competitors to regulate Telecom were fierce, and sometimes personal. Gattung says her book doesn't detail a public shouting-match between her and then CallPlus CEO Annette Presley.

"Actually, no, I don't talk about that. But I do talk about some of the Australian journalists calling the New Zealand telecoms environment Thelma and Louise."

Roderick Deane, CEO of Telecom between and 1992 and 1999 when Gattung replaced him, also chaired the board until he left in a huff over the unbundling announcement in 2006. He's still strongly critical of the decision. "I don't think there's any need for the kind of regulatory regime we have. I think it's holding back the company, and the country as a whole."

Deane says that, by his reading at least, the government of the time had taken unbundling off the table earlier that year. "Did we misread the political situation? Yes we did, in the sense that we weren't aware of such a major matter in such a short space of time. We took them at face value."

Telecom also persisted with an older, CDMA technology for its mobile phone network and only recently upgraded to the newer industry-standard with XT.

Deane says that this, again, was the fault of Government. "We bought the GSM spectrum in an auction, and the Commerce Commission forced us to sell that back to Vodafone and Bell South. I still remember pleading with the Government that we should have that technology, but officials - in their infinite wisdom - decided against it."

Nonetheless, Deane concedes that history proved CDMA wasn't the technology of choice. "It was a bit like VHS versus Beta," he says. "And Telecom has effectively moved to VHS with XT."

Gattung says the political pressures that led to Telecom being split came from New Zealanders harking back to the days when it was part of the Post Office. "It comes from a conflict between a large company that's owned largely by offshore investors driven by returns, and a public that still sees it having some legacy as part of the public sector. In some ways the public would still prefer to see it as an SOE."

The prospect of renationalisation is unlikely, but Gattung makes note of the current low share price and says with a laugh: "Don't be surprised - it wouldn't cost that much to buy now."

The two former executives are loathe to comment on the state of the company, but Deane concedes there are tough times ahead: "I don't deny that the management today has some pretty major challenges."

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One challenge, albeit minor in the larger scheme of Telecom's travails, is getting the XT network working as it should.

The causes of the XT outages are not yet clear - especially as all three disruptions appear to have different causes - but inadequate redundancy has been fingered as a cause by some market observers.

Mike Davies, general manager of networks and service for Vodafone, says he isn't gleeful at the problems of his rival. "We take no delight in the boys up the hill having issues. To be honest, I do have some sympathy."

Davies says the resilience of his network is underpinned by six radio network controller (RNC) towers that limit the scale of any disruptions.

Telecom has only two such towers, and has sped up the construction of two more as part of its response to the problems of the past two months.

Meanwhile, other frustrated XT customers have inundated Telecom's call centre in Manila. Karen Campbell, a call centre consultant, thinks Telecom's move to outsource customer relations has backfired and is now seen as a maze with no escape.

"When I'm consulting with clients, people will tell me 'We don't want to be a Telecom or an IRD'," she says. "They appear to send people around in circles, and whether that's correct or not doesn't matter, it's the perception in the public arena. You will wait a long time and you will not get a correct answer."

Tempers at the call centre appear to have boiled over. Telecom has dismissed four Manila-based staff after "F*** you" text messages were sent to five members of the public who called to complain about their mobile service.

While the public grapples with the call centre, bigger businesses are simply holding their breath. Fonterra announced last week it is holding off transferring its 3000 staff on to the XT network until the current problems are resolved.

Newman says many larger users are watching developments closely. "I haven't heard of any major users ditching Telecom yet, but if you're in the process of migrating to a network and that network has problems, it makes sense to wait until they're resolved. I don't blame Fonterra at all."

Despite the disruptions and decline of Telecom from near-monopolist monolith to just another competitor, IDC analyst Rosalie Nelson says the company shouldn't be written off.

She points to figures showing Telecom still controls 55 per cent of the telecommunications market and this is nothing to be sniffed at.

"Telecom remains in a very powerful position because it still has enormous scope and scale. The competition will still be there, but it's still going to come down to who can deliver the best customer service, and best products at the best price."

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TOWIE'S TAXING TIMES WITH XT

One Hutt Valley resident has had a gutsful of the letters X and T. Tony Valentic of Valley Parking Services says the repeated loss of service has cost him business and has exhausted his patience.

"I'd never had a problem with the old phones, I'd been with Telecom forever," he says.

He signed up to XT on the promise of better and cheaper services. "But it's just been a fricken' nightmare, and my phone bills have been double. And I'm locked in because I signed up for two years. It's not like I can pop down to Vodafone and start again."

His business - towing - doesn't normally endear him with public, but he says problems with calls added to the aggro. "It's like pouring petrol on the fire."

During the major outages in December he had to suspend business altogether. "No one could find their cars. They were ringing but nothing got through. I had to tell the guys to take the cars back and put them where they found them. That day alone cost me $3000," he says.

Dissatisfied with the $300 credit offered by Telecom in compensation for the outages and continued problems with his mobile phones, Valentic has staged a protest that has turned the towie into a wildly popular battler.

Valentic listed on Trade Me an antique wooden phone with a crank handle, and advertised it as "Telecom's latest edition to the XT network. They have gone back to basics so there will be no more problems with receiving texts or calls." He further twists the knife by saying his phone already has an allocated number: 027 XT SUX.

Late this week bids for the auction had topped $1000, with more than a 100 users posting messages of support for Valentic and abuse of Telecom. He says he will donate the proceeds to Women's Refuge.

While Telecom scrambles to restore trust in its network, Valentic has lost faith. Several of the commentators on Trade Me have been sales reps for rival companies - offering him deals he's unlikely to refuse.