TelstraClear axe swings

By PETER GRIFFIN telecoms writer

TelstraClear is wielding the knife as it struggles to compete against Telecom.

Sources close to TelstraClear say 10 sales staff were made redundant this week and a dozen more are to be cut from its small and medium business sales team, which focuses on an important area of business for the company.

But chief executive Rosemary Howard rejects claims that customer dissatisfaction, slow growth in market share and problems with TelstraClear's next generation network are holding the company back.

The redundancies are small in number but involve experienced salespeople and follow the departure over the past six months of half a dozen staff who reported directly to Howard. Other salespeople have also resigned.

It is understood TelstraClear's sales team did not meet its revenue target of around $315 million for the year to June. Sales targets for some staff have now reportedly been lifted by up to 30 per cent to make up the shortfall.

"Because they're short on revenue they're going to force their [earnings before interest and tax] number to come out right by reducing costs," said a source close to the company.

Howard would not comment on revenue growth or sales targets, but said the bulk of redundancies had been made. "We will continue to make minor changes where our market performance is different from where we have our staff," she said.

The sales team was not necessarily as big, but "in terms of labour dollars we are spending more," said Howard.

"If I'm telling you we've got more customers, we've clearly got more revenue," she added.

TelstraClear had revenue of $306 million in the six months to June last year, and reported a $107 million loss as it bore the brunt of restructuring costs and write-downs.

When Clear Communications and TelstraSaturn merged in December 2001, Clear held 7 per cent of the telecoms market and TelstraSaturn 4 per cent.

But TelstraClear has been slow in taking significant business from Telecom.

Howard estimated the merged company now had between 12 and 13 per cent of the market, a rise of 2 percentage points at the most in 18 months.

"That figure isn't hugely higher but total market revenue has grown significantly and much of that is in the mobile sector where we don't play as effectively as we need to".

Sources claim revenue has grown at a reduced rate due to "broken systems and processes" and the unreliability of TelstraClear's private internet protocol network.

Howard said network failures were caused by the challenges of introducing state of the art technology.

"We did have some issues in the last financial year," she said. "We did a major review end to end.

"Some of the [equipment] vendors did let us down".

But a sizeable customer which recently took its business to Telecom from TelstraClear said it made the change because Telecom could offer the same level of service at a lower cost.

As well as struggling to win market share, TelstraClear is experiencing significant churn in its customer base - up to 20 per cent among residential customers, sources say.

Most analysts and commentators consider Telstra's $435 million purchase of Clear a smart move, as to build a network covering anywhere near the size of Clear's would have cost a lot more.

But the success of TelstraClear in becoming a profitable business in New Zealand is dear to the hearts of Telstra's management.

Industry sources suggest the underlying plan is to quickly get TelstraClear to a position where it can be held up as a shining example of how Telstra can succeed overseas as a fully functioning telecoms company.

"It's a good way of talking up the media, which pushes up the share price, which is a good way of getting your masters in the Government off your back and getting the float done," one observer commented.

The Australian Government expects to sell its 50.1 per cent stake in Telstra by 2006, a move that could net up to A$34 billion with a sale at A$5.25 a share.

But the sale will take place only if Telstra's share price rises. Its shares closed at A$4.49 yesterday.