KEY POINTS:
Well, here's where the rubber hits the road - the first quarterly result period under the stewardship of new Telecom boss Paul Reynolds and the figures don't give much to crow about.
Earnings are down, revenue up but only by a sliver and in some key areas Telecom should be doing well, it's being hammered by the competition. Telecom's management puts that down to the distraction of operational separation and regulation in general. Fair enough, but now it's time for Telecom to stop moping and pull its socks up.
"I've never seen Telecom's people in New Zealand quite so stressed," said Telecom's chief operating officer for business, Simon Moutter during this morning's earnings briefing.
"It has caused us to drop the ball on some of our retail products and we've taken our eye off the market."
All of that means Telecom has to work hard to turn parts of its business around as it approaches separation day - March 31.
A while back, Reynolds wrote a checklist for himself to get his priorities with Telecom straight. I'm glad he did that because it can also act as a report card moving forward. Here's how his progress looks to date.
Customer focus
It's a good catch-phrase but what has changed so far? Reynolds came into Telecom claiming his main focus would be to make Telecom a more customer-friendly organisation. There aren't too many major signs of that yet in the consumer space. Telecom just isn't being innovative enough when it comes to offering competitive bundles across broadband, mobile and fixed-line voice. Customer service is improving but the nightmare customer experience stories keep coming.
In wholesale, Matt Crockett is doing his best to start thinking like his old competitors are now as important as Telecom itself. But Telecom's cabinetisation plans caught his wholesale customers off-guard and there's a considerable amount of resentment there as a result.
In the business sector, Telecom's stronghold, its IT arm Gen-i is going gangbusters, but the average small or mid-sized business is still looking to the second-tier for a better alternative. What is Telecom going to do to better focus on this demographic - the backbone of Kiwi business? Report mark: C-
Regulation
Telecom is coping as well as could be expected in this area. It's pulled its head in and agreed to behave itself, scrambling to get operational separation underway. It set up the access network as a separate unit called Chorus. It's playing ball with ISPs why want to trial local loop unbundling.
Reynolds' experience at BT will prove invaluable in the coming months in this area. The key is that the timetables are met and Telecom doesn't try to worm its way out of its commitments. Months of to and from with the Commerce Commission will help no one. Report mark: B+
Broadband
A dire performance here. Telecom is letting its hold on the broadband market slip through its fingers.
"I'm disappointed with sales in the quarter,"was Reynolds' understated comment on the broadband business.
Telecom accounted for just 26 per cent of net broadband additions in the New Zealand market during the period. This is in a market where broadband penetration is only 38 per cent. Competitors like Vodafone/ihug, Orcon, TelstraClear and Slingshot are in a land-grab for customers that Telecom is refusing to counter with more competitive broadband deals.
As Moutter said: "We chose not to go there. Those types of offers are clearly uneconomic and we note that those sort of offers have disappeared from the market."
Well, price-cutting may not be sustainable but Telecom needs to do something to hold onto broadband customers and to appeal to those stragglers switching from dial-up. Its broadband plans aren't competitive, though I understand an overhaul of those packages may make a positive difference in the near future. The YahooXtra Bubble fiasco hasn't helped Telecom's image in the broadband market. Now Telecom is basically ignoring this platform. It needs to get over last year's failures and start pushing the platform as a value-add. Report mark: D
Mobile
Patchy performance here. Plus there's lots of uncertainty ahead as Telecom faces Telstra's CDMA network shutdown and at home goes about building a new GSM-based network, which Reynolds expects to be launched before the end of the year.
Telecom added 90,000 customers during the last three months of 2007. But it is losing market share and revenue in the lucrative post-paid mobile market, where Vodafone is cleaning up. Moutter said the management team is concerned about lower revenue, lower device sales and the impact of declines in voice usage and in voice call pricing.
Telecom is getting its act together in mobile - it has the Worldmode Blackberry in the market now and its new network will give it better options against Vodafone and allow it to claim more of the lucrative mobile roaming market. A larger selection of devices on the new network will also help Telecom compete on handsets. But Telecom has to do better in the area of mobile applications, especially in the consumer space. IIt needs to do something big with its new network launch - like secure the exclusive rights to the Apple iPhone, or something. How about all-you-can-eat mobile data and calling packages? Maintaining two networks will be horrendously expensive. Why do you think Telstra is so keen to wind down CDMA? Report mark: C
Next-generation network
There's a heck of a lot of work going on here even if the average Telecom customer wouldn't notice the difference. Telecom has been rolling out ADSL2 to improve the broadband network and its aggressive plan to push fibre out to roadside cabinets is part of its plan to make the network faster and therefore capable of delivering new and better services.
But services the NGN was touted to deliver, like a consumer Voice over IP service and IPTV are yet to emerge. In fact, both are well and truly on the back-burner, or so it would appear. Telecom seems more focused on getting everyone 10 - 20Mbps (megabit per second) internet connection speeds, which is a worthy goal. Report card: B-
Australia
Yawn. It's hard to get inspired about Telecom's Australian business even after the Powertel acquisition which is still bedding down, complete with some serious teething problems. A problem migrating to a new billing and service platform has led to "a lot of calls into call centres", said Reynolds. Hardly a way to endear you to your customers.
How Powertel will benefit Telecom in Australia long-term is still far from clear. The most promising thing on the horizon could be AAPT's membership of a consortium bidding for Government money to help build an open-access fibre-to-the-node network in Australia's urban centres. If AAPT can participate in this it may be able to use this network reach to drive the Powertel advantage home. Meanwhile, Australia is still a black spot for Telecom. Report mark: C
ICT
The shining-star in the Telecom Group, IT shop Gen-i has been picking up big contracts left, right and centre, including a key one with the Ministry of Social Development that saw rival TelstraClear flung out on its ear.
Gen-i is picking up market share in the IT market and Moutter expects it to grow at twice the rate of the IT sector over all. Not a bad effort. As Telecom moves into the unified communications space, probably through partnerships with Microfot and Nortel, it will have a leadersip role in brining the next generation of converged calling and messaging products to New Zealand businesses. Report mark: A
