Losses fatal for Telstra's boss

Ziggy Switkowski will receive A$2.09 million, plus an extra payment if he leaves early. Picture / Reuters

CANBERRA - Ziggy Switkowski quit as chief executive of Telstra Corp, Australia's largest phone company, after a five-year tenure where he presided over a 42 per cent slide in the share price and more than A$2 billion ($2.16 billion) of losses from a failed expansion in Asia.

Switkowski, 56, will leave on July 1, next year, or as soon as a replacement is found, Melbourne-based Telstra announced yesterday.

Speculation Switkowski would step down emerged in April when Bob Mansfield quit as chairman after the board blocked a plan for the company to buy the nation's second-biggest newspaper publisher.

The Telstra statement said it needed "potential investors" to be confident in its leadership as the Government sought to sell a 51.8 per cent stake valued at A$32 billion.

The new chief executive will need to win back share of a A$30 billion market lost to Singapore Telecommunications and Vodafone.

"Under Ziggy's reign the company hasn't performed to its best ability, hence his tenure was cut short," said Paul Xiradis, head of equities at Ausbil Dexia in Sydney.

"The board probably felt they needed some fresh blood to take Telstra to the market, and ensure there's appetite for the stock," he said.

Switkowski led Telstra's expansion into Asia, which was marred by more than A$2 billion in losses. The company last year wrote off its investment in Reach, an undersea cable venture with Hong Kong-based PCCW that was once valued at A$965 million.

Telstra shares fell 2Ac to A$4.91 at the 4 pm close of trade in Sydney, after earlier rising as much as 1.4 per cent to A$5. The stock had risen 3.6 per cent since the start of last week, amid speculation Switkowski would resign.

"The board considers it very important to give the market, potential investors and staff as much certainty as possible regarding the leadership of the company through its expected full privatisation and beyond," Telstra Chairman Donald McGauchie told analysts and reporters on a conference call.

Telstra needed a successor who could lead the company for a five-year period and oversee the share sale, which would probably occur at the end of 2006, McGauchie said.

Both internal and external candidates would be considered, he said.

"The new chief is very likely to be a salesman," said Marcus Padley, an analyst at Tolhurst Noall in Melbourne.

"Someone who can market the share sale effectively in an international arena. On that basis an internal appointment at Telstra has to be an outside bet," he said.

The Australian Government, which won control of the nation's Upper House at an October 9 poll, is planning to sell its stake in a single public offering that would be the world's largest ever, outranking the $18.3 billion initial public offering of Japan's NTT DoCoMo Inc.'s in 1998.

Treasurer Peter Costello said on October 29 that the Government would not sell the shares until the share price was "about" A$5. The stock has risen 5.8 per cent since then.

David Moffatt, who runs Telstra's consumer and marketing division, is considered by some investors, such as Xiradis and Matthew Kidman, as a candidate for the chief executive role.

The 44-year-old served as Telstra's chief financial officer before taking charge of the consumer division, and was previously chief executive officer of General Electric's Australian and New Zealand unit.

"Moffatt is very well regarded by investors and has got a good background from GE," said Kidman of Wilson Asset Management in Sydney.

Switkowski will receive a payout of A$2.09 million plus an extra payment if he leaves before July 1, Telstra said.

Switkowski, who spent more than US$5 billion on acquisitions as chief executive, according to data compiled by Bloomberg, abandoned the expansion strategy in June in favour of returning A$4.5 billion to shareholders through buybacks and increased dividends during the next three years.

Mansfield resigned in April, citing a rift with other directors. His departure came two months after the board rejected a plan backed by him and Switkowski to bid A$3.5 billion for John Fairfax Holdings, Australia's second-biggest newspaper publisher.

A nuclear physicist, German-born Switkowski joined Telstra from rival Optus Communications, where he had succeeded Mansfield as chief executive. Before that, he spent 18 years at Eastman Kodak, where he ran the company's Australian business between 1992 and 1996.

He quit Optus, now owned by Singapore Telecommunications, in June 1997, and joined Telstra two months later to run its business and international division. He replaced Frank Blount as CEO in March 1999.

Telstra last year extended Switkowski's contract until December 2007.

He had staked his job on achieving at least 4 per cent growth in domestic sales, the industry average, by 2006. Domestic sales rose just 1.7 per cent to A$19.3 billion in the fiscal year ended June 30.

"Those targets are the targets the chief executive set, and the board will do everything it can to support the chief executive in achieving those targets," McGauchie said.

The former Government monopoly's share of the telecommunications market fell to 60 per cent from 75 per cent under Switkowski, according to independent industry researcher Paul Budde Communication.

- BLOOMBERG