KEY POINTS:
Chief executive Paul Reynolds has filled a gaping hole in the leadership at Telecom and analysts are welcoming what some yesterday called a "logical plan for change".
But while Reynolds has a clear plan, there is no guarantee he can fast track New Zealand's largest public company back to profit growth.
After years of leadership under former chairman Rod Deane and former chief executive Theresa Gattung, the company is now paying the price for its inaction.
Yesterday Reynolds delivered his first annual result as Telecom CEO - a big fall in net profit which he insists was "a pretty good result" in a year of profound change.
"Its been a tough year - tough for shareholders and for Telecom people," said the $2m-plus Scottish telecom executive who joined Telecom this time last year.
But the market reacted badly amid concerns about next year's guidance - and its shares fell 28c to $3.40.
The scale of change facing Telecom is unprecedented, says IDC telecommunications analyst Rosalie Nelson. "Telecom had been walking backwards avoiding regulation and competition and now it has had to turn around and break into a run."
Like all listed companies Telecom faces skittish investors in the volatile economic downturn.
But Telecom is facing much greater upheavals on several fronts. The question is whether the Telecom we see now is comparable to the one that dominated the New Zealand sharemarket during two decades of lax regulation and light competition.
Telecom chairman Wayne Boyd told the Herald: "We know shareholders have got concerns. But Paul's progress should give investors confidence we will deliver."
But aren't the company's current woes the price for its failed strategies of the past - its failed attempt to take on the Government while ignoring the need for a Plan B?
Boyd, a longtime Telecom director, declined to comment except to say - almost as an aside: "I know exactly what you mean."
IDC's Nelson, said it was hard to know from yesterday's figures how the Reynolds makeover was really going.
"Its like they are bolting together things onto the chassis and trying to keep the wheels running and upgrading the engine at the same time," she said.
At the same the time she said the company was facing an increased threat from Vodafone.
James Lindsay, joint equities manager at Tyndall Investment Management, says that Reynolds' approach provides a logical plan for the company.
"Telecom is a pretty big beast to move around - but as they develop they will become more nimble. It just will not happen stunningly quickly."
He said the increase in costs would need to be closely watched, especially for Gen i - the information technology company that is seen as a bright light for the company.
For his part, Reynolds acknowledges the scale of the issues and the Vodafone threat. But he says the company is changing in a methodical way.
They started first improving relations with the Government, followed by the extraordinarily complex task of splitting the company.
He says he has now started looking at Telecom's marketing - a Vodafone strong suit - but argues that what the New Zealand market really needs is greater capability, not more branding.
Still, there have been rumours of a new brand - not just for the new mobile network, but for Telecom as a whole.
One of the key challenges is in the mobile phone market where Telecom is already lagging behind with its obsolete CDMA format.
It now has around 45 per cent of the market compared to Vodafone's share of about 55 per cent. What's more Vodafone makes around $44 a month for each phone compared to $29 for Telecom.
A new format allowing more 3G capabilities is to be launched by Telecom towards the end of this year - but it seems unlikely to be fully launched before the Christmas retail rush, suggesting there have been delays building the network.
As for the share price, market commentator Arthur Lim says the market remains shy of anything with regulatory risk. But the brand is still strong, he said.
"Telecom is still the predominant player," he said. "When people are looking for services - when you move into a new home you do not think Vodafone or Telstra Clear. They look to Telecom."
THE BIG CHALLENGES
Telcos face challenges all around the world. But Telecom New Zealand faces unprecedented upheavals after years of holding off regulation and competition.
Regulation: After years in a benign regulatory environment, Telecom faces tougher scrutiny.
The big split: Under legislated orders Telecom has three divisions - network, wholesale and retail - and is not allowed to give special treatment to its own units.
Local loop unbundling: Begun in May, it forced Telecom to open up phone exchanges to competitors.
Cabinetisation: With demands for faster broadband Telecom has embarked on a campaign to bring fibre optic lines closer to homes.
Mobile: The company is building a new mobile phone network to start at the end of the year so it can offer more mobile broadband services.
Competition: After years of shutting them out, Telecom now faces a raft of small competitors.
Vodafone: The global telco is aiming at fixed-line phone services that provide more than half of Telecom's revenue. It also remains a threat to the mobile business.
New management: It is arguably a plus Paul Reynolds has introduced a new team to push through his overhaul of the company.
