Embattled CEO fires back at Telecom's critics

Theresa Gattung says her most difficult job is predicting what new shifts in technology will bring. Picture / Paul Estcourt

"We never get credit for doing anything well, and that does frustrate me sometimes," Theresa Gattung says. "What we do is never going to be enough."

Telecom's chief executive can't help but sound annoyed when the topic of criticism comes up during conversation in her colourful Wellington office.

The company is under attack from all quarters of late - from regulators, analysts, shareholders, customers and competitors.

Telecommunications Commissioner Douglas Webb last week voiced displeasure with Telecom's level of infrastructure investment, saying the company was only putting in the bare minimum "and not an inch above".

Telecom shares, meanwhile, have been on a rollercoaster ride over the past few months. In early May, Gattung warned that Telecom's profit would be hit by investment in new technologies, so its earnings would be coming in at the lower end of analysts' estimates.

A few weeks later, Goldman Sachs JBWere NZ lowered its rating to "sell" from "hold", saying the telecommunications industry was now the most competitive it had been since a long-distance-calling price war in 1999.

The stock took further hits on June 10 after Telecom settled a dispute with Slingshot founder Annette Presley, and then again last week after Webb's ominous comments about possible further regulation.

Then there are the long-standing criticisms from some customers - that Telecom's broadband offering is too slow, and therefore not real broadband. Wholesale competitors, who resell that broadband service, are also complaining about their lack of access to Telecom's network.

And the recent rat-inspired service outage didn't help matters. It's enough to make a CEO's head spin.

It is with some defensiveness, then, that Gattung takes aim at Telecom's critics. The Telecommunications Users Association of New Zealand has in the past been vocal in criticising Telecom, saying the company has actively tried to stifle competition by creating barriers.

"An organisation like TUANZ makes its living by criticising us," Gattung says. "We are their raison d'etre."

TUANZ has also been critical of Telecom's infrastructure investment, an issue Webb weighed in on last week at the Telecommunications and ICT Summit in Auckland.

"There's no evidence to suggest that there's been any underinvestment in terms of what the outputs or outcomes are for customers," Gattung says. Telecom invested $416 million on infrastructure in its 2004 fiscal year, and plans to ramp that up to $535 million in 2005 and $560 million in 2006. That expenditure is about 13 per cent of earnings, or on par with other major global telcos, the company says.

But some industry observers say that since Telecom is the only major voice and broadband infrastructure owner in New Zealand, the company should act as a good corporate citizen and raise that figure.

So what would happen if Telecom invested 20 per cent of revenue, or more?

"The market would definitely think we've lost the plot," Gattung says. In fact, she adds, Telecom would be hard-pressed to spend any more.

"We couldn't physically spend that much," she says. "One of the reasons we bought [IT services company] Gen-I ... is that we had run out of network design engineers. We couldn't buy any more, so bought the company that had them."

It's a tricky balance that needs to be struck between customers and investors, and Telecom has often been attacked for favouring shareholders' wants over society's needs.

"If you're talking about customer focus versus shareholder focus, you can only ever get those things out of whack for a short period of time because if you're not focused on customers, your returns are going to go down," she says.

"At any one period of time, you probably can focus more on one area or the other, but over the long term you can't put one ahead of the other or it will get out of sync."

But what irks Gattung more than the question of investment are criticisms over the company's ownership. Most Telecom shares are held by overseas investors, with only about 27 per cent in New Zealand hands. Gattung insists, however, that Telecom is a Kiwi company.

"We intensely matter to New Zealand," she says. "Sometimes it does hurt, this assumption that all we care about is some faceless offshore owner. We don't sit somewhere in London or Melbourne and make resource allocation decisions about what goes into New Zealand."

The company has steadily increased its Kiwi ownership since it went public in 1991, but institutional investors here are tapped out and own as much as they can, Gattung says. She makes a point of pushing the stock to retail investors when on roadshows around the country, and hopes Kiwi ownership will continue to grow.

As for the financials, Gattung is pleased with the company's performance. When Telecom reports its results this month, it will be posting double-digit growth in mobiles, broadband and IT services, she says.

While penetration rates for some of these services may have a ceiling, Gattung says future growth options - such as television over the internet - are very promising.

If world broadband uptake leader South Korea can be used as an example, where penetration has hit a plateau of around 25 per cent, New Zealand can probably expect to have one million high-speed internet users at some point.

"Once you're in a broadband-ubiquitous world, the chances of Sky TV and Telecom being able to think of new things to do together that don't exist today that people might buy, it's worth thinking about and it's more likely to happen," she says.

The most difficult thing about her job, Gattung says, is predicting what these shifts in technology will bring, and which ones customers will choose.

"No telco CEO was ever smart enough to say that texting would be a core application - customers decided that," she says. "Picking those shifts, and knowing what's going to happen, is hard. And once you make a decision on a technology platform, you can't unmake it."

Telecom is thus gambling hard on the Evolution Data Only (EVDO) technology standard, which it chose for its third-generation mobile phone network. The strategy is thus far paying off, with Telecom for the first time beating out Vodafone to capture 51 per cent of new mobile customers in the most recent quarter.

Gattung disputes charges that Telecom is a monopoly, and says customers have choice in every market now. And in the end, business wouldn't be going up if the company was as evil as its critics say.

"If we weren't doing something right, [customers would] be choosing somebody else," she says. "We'd be losing customers left and right."