Hardest challenge still ahead for Telecom's Gattung

By PETER GRIFFIN

You would think that after a tough year on the back foot, vigorously defending her company's performance to analysts, shareholders and journalists, Telecom chief executive Theresa Gattung would be weary, jaded, sick of it all.

But that's not her style. She stands at the entrance to her office overlooking a sunny Wellington Harbour looking crisp and energetic, as if the past few months had been spent at a health retreat rather than zigzagging across the Tasman dealing with the concerns of the country's biggest listed company.

Two years into the job last October, the golden girl of telecommunications says she has enjoyed the last year more than the first.

"I went through a learning curve in those early months, getting used to the fact that the buck stops here," she says, jabbing a thumb at herself as she sinks into a yellow chair.

When she rose from the Telecom ranks to become chief executive in October 1999, aged 37, she had to stave off criticism that she was too young, not yet CEO material.

She used to counter that her relative youth was not a burden, often pointing out that Bill English, then Treasurer, was the same age. Now both are at the top of their respective organisations - wiser and older.

"I'm trying to psychologically adjust to the fact that I'm going to turn 40 soon," she laughs.

If entering her 40s represents a new era personally, it coincides with the beginning of a defining period for the company she leads.

The next year or two will largely determine the success of Telecom ventures conceived before she was in the driving seat: whether Telecom's 100 per cent-owned subsidiary AAPT will survive and prosper as the third-biggest telco in Australia; if the company made the right choices investing in a CDMA mobile network at home and a $A400 million 3G venture with mobile operator Hutchison Whampoa for Australia and Asia.

For Telecom, however, the year started on a positive note with a share-price rally attributed to the decision to raise line-rental charges and general renewed confidence in telco stocks. Last month, Telecom shares nudged towards $5.40, far from their October low of $4.21. Some analysts pick them levelling off around $5.60.

It is a sign of confidence in the company as it faces new challenges in the form of strengthened competition and a regulatory framework unlikely to deliver it any favours.

Thanks to Telstra's $435 million acquisition of Clear Communications, Ms Gattung now has one major foe in the fixed-line telecoms market - TelstraClear, the formation of which has been long expected.

"It's not like we woke up one day and they appeared," she says of arch-rival Telstra. "They've been in the New Zealand market in one form or other for several years. This is their third crack at it now."

She is mindful, however, of the deep pockets that will keep TelstraClear ticking over as it beds in.

"We're both big companies and we're both used to winning. But we're not about to let the Aussies beat us on our home soil," she warns.

In the mobile market, Vodafone is a formidable opponent. Even dairy company Fonterra is looking to stick its finger in Telecom's pie, hoping to work with wireless technology partners to deliver an internet service to its 13,000 farmers.

For the moment, however, despite reduced profits - down from past annual figures above $800 million to $643 million in the year to last June - the home market is relatively safe.

Across the Ditch things are nowhere near as secure. About 70 per cent of AAPT's operating costs are chewed up in network access payments to Telstra, the all-consuming incumbent.

Telecom has long bemoaned its difficult competitive position in Australia, where it holds a position akin to that of Clear before its acquisition by Telstra.

Ms Gattung tries to explain Telecom's seemingly contradictory philosophies on either side of the Tasman.

"One of our main issues in Australia is the length of time the process takes. The ACCC [Australian Competition and Consumer Commission], then the tribunal and the courts.

"Telstra is appealing against an interconnect decision and that could take another couple of years to go through the courts," she explains.

"The whole process could be four years from start to end. And AAPT is financially exposed if they make a decision against us going back several years."

She points out the over-riding problem - the Australian Government's stake in Telstra.

"If you're competing against someone who is [both] a referee for the industry and the owner who stands to benefit from Telstra's performance, that is a fundamental problem."

And in New Zealand, where TelstraClear has its own network access dispute with Telecom and Telecom's wholesaling regime draws considerable flak?

"Well here the Government has decided that the Telecommunications Commissioner will have the last word. We haven't kicked up a stink about that."

Maybe not, but Telecom made no secret that it would have liked the status quo maintained, with disputes settled on a commercial basis.

"We've got a situation of conflict with [TelstraClear] and now we've a third party we can take that to," she says of the commissioner.

Relief is in sight in Australia if AAPT can hold out long enough. The ACCC is vigorously calling for limits to Telstra's powers through changes to its access regime, the system by which competitors like AAPT gain access to Telstra's network.

And the Howard Government plans to sell its 51 per cent stake in Telstra by 2004, which would level the playing field somewhat.

Negotiating Australia's regulatory landscape is essential to AAPT's success. So is attracting customers who are also vigorously pursued by Telstra and second-ranked Optus.

Your average Aussie associates AAPT with cheap long-distance call offers - but little else. That is no real failing on AAPT's part. Like TelstraClear here, it cannot compete in the residential calling market against an incumbent with the upper hand.

The business market is where AAPT is digging in. Already Telecom has scored some victories, notably a five-year, $500 million deal with the Commonwealth Bank to service its entire telecoms and IT needs.

"It's not a typical new entrant strategy to start off with the largest customer in the country!" crows Ms Gattung.

But more big corporate deals are needed this year, and AAPT is costly to run, accounting for a third of Telecom's revenue but about half its expenses.

So what is the long-term plan for Australia?

"The aim is to sell off the back off our own infrastructure," she says. "Not to buy so much from Telstra.

"We have a national backbone leasing deal with Optus. We have nearly 100 per cent voice coverage with around 70 voice switches and we have about 90 data switches."

She adds that local loop unbundling in Australia has done little to improve AAPT's position.

Cementing the relationship with AOL in preparation for the day when internet advertising and content start generating income is a priority.

The overall plan will require significant repackaging which will probably see both the AAPT and Telecom NZ names disappear.

Ms Gattung says the process is well under way. "It's a live issue, but I'm not going to give you a time frame. Telecom is seen as solid, reliable, which is important post September 11," she says of the brand-name familiar to all New Zealanders.

"But it's not seen as innovative and entrepreneurial. AAPT is, and if we could combine the two we would have the company we want to be."

With Telecom now doing about a third of its business in Australia, she has a vested interest in making her transtasman business dealings smoother, something she believes needs a lot of work on the part of Government and business.

"Europe has had decades of war, plague, famine, pestilence and they can get their act together with the EU and common currency, one GSM standard for cellular, one passport that can take you anywhere.

"Between Australia and New Zealand, where we have such need to present a united front to the rest of the world, we struggle.

"I was a business student when CER was announced, and I thought it was visionary. Seventeen years on, I don't think we've fulfilled much of what it had to offer. You could ask what I am doing to improve things. Well, at the moment I've got my hands full running Telecom."

It is an all-consuming job, one that has effectively ruled out children.

"I'm running out of time and it's not really compatible with being a full-on CEO," she admits. "But I still haven't entirely ruled it out!"

An avid rider, she spends her little spare time on her horse, Pride.

After the job, riding ranks among her greatest passions.

"If I'd started horse riding earlier, I'd potentially do that seriously in the future, but I'd be too old - and not talented enough," she laughs.

She admits that if she were not heading Telecom she would not fall into the early adopter category, though she is on the CDMA network and uses Jetstream.

Her partner and best friend, former economist John Savage, has changed direction, now pursuing a career as a photographer.

"He wouldn't be without Jetstream, he's really into digital photography," she says."We've now got our own mini local area network so we can have Jetstream in different parts of the house."

Five to seven years at the top of Telecom is still her aim, a long time in telecoms, where a company's fortunes can turn, virtually overnight.

But she's not forecasting what she'll do after that.

"I don't see beyond another three to four years doing this. I'm not the sort of person who needs to do CEO role after CEO role."

In Theresa Gattung's long-term game plan, the journey has just begun.