KEY POINTS:
TelstraClear chief executive Allan Freeth was pilloried when he railed against complacency in a pre-Christmas memo to staff leaked to media.
Freeth's 2006 missive painted a dour picture for staff of a troubled firm he said was on a "trajectory to disaster".
It's doubtful many staff felt motivated after the bawling out.
Freeth acknowledges the note was not meant for general release and accepts its failings.
But he says that is his approach, and he is not going to have a personality change. Nearly two years later he says the company has made a cultural change and is about to ramp up its challenge to Telecom.
A doctor of philosophy, Freeth is among the most academically accomplished chief executives in New Zealand and even detractors say he is fiercely intelligent.
He is highly focused and drives his 1400 staff to meet targets.
"There is a plan and you stick to the plan," said one middle manager.
But blunt appraisals like those in the Christmas memo, and a tight focus on The Plan means - like any CEO - he has his critics.
"He is an extremely intelligent man and a very complicated man," said one executive - not a competitor - who would not be named.
Freeth, a former PGG Wrightson chief executive, has been with TelstraClear for three years.
He took over a company that was losing money and out on a limb with its Australian parent Telstra.
Freeth believes that after years of trials he is in "the exciting time" - the time when it starts to make a big push to grow its 14 per cent share of the New Zealand telecommunications market.
TelstraClear making a big scale challenge to Telecom sounds great. On past experience though, people in the industry will not be holding their breath.
The wholly owned subsidiary of the Australian telco has seemed half-hearted. Freeth says the company has been building a framework for growth and cynics have mistaken this for a lack of interest.
Freeth says the sleeping giant of the telco industry plans a big push by the end of its financial year in 2009.
The push will involve hooking into Telecom exchanges, which they have been forced to open up. The unbundling moves - which are not limited to Auckland - will be bigger than those already undertaken by Orcon and Vodafone.
Freeth says they illustrate TelstraClear's investment in this country - $1.5 billion and counting - with more than $100 million this year, and he puts paid to speculation that the big Aussie parent is ambivalent about its Kiwi subsidiary.
He says the spirit at TelstraClear is illustrated by its new television marketing campaign. The ads feature a tired old telephone - presumably Telecom - and a go-gettum animated figure called TC, representing TelstraClear.
"I see some of myself in TC," said Freeth.
TelstraClear is based at offices in Takapuna and has a formidable infrastructure that gives it the capability to launch a major attack on Telecom's fixed-line services.
But it has always seemed half-hearted compared to Vodafone, which this year started accessing unbundled Telecom exchanges in Auckland. Telstra has a market capitalisation of A$24 billion ($34.1 billion) and has the capability to make a big impact.
"But when we think about a big competitive threat to Telecom we think of Vodafone, not TelstraClear," said one industry veteran.
The view from many is that Telstra set up here with the expectation they would expand significantly if Telecom ever decided to make a big push into Australia. Indeed there are a lot of similarities between Telstra - and its seemingly difficult relationship with its New Zealand subsidiary - and Telecom and its long-running attempt at breaking into Australia.
Many Australians view Telstra in the same cynical way that New Zealanders do Telecom - big, dominant and aimed at suppressing competition.
Unbundling, which happened here just six months ago, is further ahead in Australia. But Telecom took an even bigger regulatory hit with legislation that forced the company to be split into three operating divisions. Now some Telstra critics in Australia are suggesting that Telstra needs a similar split.
Freeth was surprised by the fact that Telecom has been operationally split and Telecom's approach to implementing it.
"I take my hat off to them - I've met [chief executive] Paul Reynolds and he is a good guy," he said, noting that TelstraClear's use of Telecom networks made it Telecom's biggest customer.
"The difference now is that they treat us like a customer."
Like the three years spent building systems such as billing, Freeth says TelstraClear has taken time with its upcoming unbundling expansion.
"We could be like competitors like Orcon [the first company to take advantage of unbundling in May] in a forward, excited, unthinking way."
Orcon had got themselves "in a pickle" putting expensive equipment into exchanges only to be overwhelmed by another Telecom programme - cabinetisation.
"We spent six to eight months looking at Telecom's plans and planning an unbundling programme for the right exchanges."
Competitor Vodafone has its fixed-line "Red Network" focused initially on Auckland.
Vodafone - with the base of more than 50 per cent of the mobile phone market - has powerful marketing muscle, something that TelstraClear has not. It is not clear whether it is keeping its powder dry, or whether it can even muster the same firepower. Freeth acknowledges Vodafone is "smart and powerful".
"But they are focused on mobile, not used to the fixed-line business. This is what we do every day."
Certainly Telstra is a formidable backer and one that from the start has demanded a return on its investment.
Freeth points out that Telstra has invested more than $100 million a year in TelstraClear over the past three years, and no company would do that if it was not serious. But one insider said that TelstraClear had the feeling of a branch office sometimes. Freeth is based in Wellington and at one point the company chief operating officer was based out of Melbourne.
It raises the old bogey about Australian companies expanding into New Zealand, viewed as being like another state like Queensland.
"The [Telstra bosses] are careful not to talk about New Zealand as being one of the states. If anybody calls us the seventh state it is usually New Zealanders in the company who use that term to wind them up."
He said the subsidiary relationship was part of culture problems when he started three years ago. Staff did not understand their obligations to shareholders and making a profit.
"They thought that as part of the Telstra empire they did not have to make a profit. That had changed now. We are no longer a start up. We are a much more disciplined challenger now, we think carefully about capital, where we are heading and what we are doing."
He said that nowadays there was more of an appreciation that TelstraClear - with some big customers like Inland Revenue - was a part of the business fabric in New Zealand.
Freeth said that in its early days TelstraClear was focused on lobbying the Government to level the playing field and worried about what Telecom was doing.
A student of history, he pointed to a story about the American Civil War and the biography of Union leader Ulysses S. Grant. While mulling over an upcoming battle he listened to his general talking repeatedly about what the Confederate leader Lee was doing.
"He said 'For Christ's sake, I've heard enough about them - What are we going to do?"'
ALLAN FREETH
* Chief executive officer, TelstraClear
* Aged 48
* Married, three children
* Lives in Wellington
Education: Doctor of Philosophy in Population Genetics through the Australian National University in Canberra.
* Bachelor of Science (Hons) from Canterbury University, and an MBA with Distinction
* A member of the Treasury Advisory Board and a director of the Geological and Nuclear Science Crown Research Institute
