Vodafone best placed to take on Telecom

Vodafone shows off new mobile phones. Picture / Reuters.

Government legislation will soon create a new competitive telecommunications landscape but a slew of issues ranging from controversy in Australia to a marital split here have contributed to an overall market that is in a shambles.

The legislation, to be passed by early next year, will aim to even the playing field and is expected to open up competition between phone and internet service providers.

But few, if any, existing players are properly positioned to take full advantage of the new regime.

The candidate with the best prospects to take on Telecom is Vodafone, which at the moment offers only cellphone and limited mobile broadband services.

The company's England-based parent has long trumpeted a mobile-only approach and, despite much criticism, resisted offering wired services such as home phones and DSL broadband.

But the company's chief executive, Arun Sarin, two weeks ago indicated that Vodafone would begin offering those fixed services, starting with a DSL reselling agreement in Germany.

The company also indicated it would look at taking advantage of local loop unbundling on a global basis.

In New Zealand, Goldman Sachs JBWere telecommunications analyst Andrew White considers that of Telecom's competitors, Vodafone is the most capable of taking advantage of the new regime. The Government-mandated services will include unconstrained internet speeds and naked DSL, or the availability of a broadband subscription without an accompanying phone line.

Vodafone has 2.1 million customers and an estimated $1.6 billion in 2006 revenue, which puts the company in prime position to take on Telecom.

"We expect the new regulated broadband offerings will provide significant potential to improve Vodafone's economics and product range," White said in a recent note.

Next down the line is TelstraClear, with about 200,000 internet customers. Its Australian parent Telstra is in the midst of a fierce regulatory battle with the Australian Government and chief executive Sol Trujillo has had little time for New Zealand.

In November, Trujillo pulled the plug on a mobile phone network for TelstraClear, which has been getting its house in order ever since.

TelstraClear has been haemorrhaging senior managers under chief executive Allan Freeth for months, with business sales head Sunil Joshi, corporate affairs head Rose Hart, government relations head Grant Forsyth, marketing chief Peter Thompson, IT services head Ken Goodwin and customer operations head Connell Graham all departing.

Chief financial officer Michael Boggs recently said the company had invested $120 million in each of the past three years and had already received a bigger budget for next year.

Freeth has said the regulatory environment here was no longer "ugly", which could perhaps convince Trujillo to change his mind on New Zealand. But for now, Telstra and TelstraClear still seem focused on settling their respective internal issues.

Number three internet service provider ihug, with about 32,000 broadband customers and 125,000 service subscriptions overall, is also plagued by problems with its Australian parent, iiNet.

The Perth-based company, which is Australia's third-largest ISP, voluntarily suspended trading in its shares on April 20 after discovering accounting and clerical errors that resulted in a downgrade to its profit forecast.

The future of CallPlus, which has 20,000 broadband customers and 120,000 overall, is also uncertain with news emerging last week that the company's husband-and-wife co-founders have separated. While CallPlus maintained it would be business as usual, market observers speculated there might be acrimony between the co-founders, Malcolm Dick and Annette Presley.

Who's waiting

1. Vodafone: 2.1 million customers and an estimated $1.6 billion in 2006 revenue.

2. TelstraClear: 200,000 internet customers but is involved in regulatory battle in Australia.

3. ihug: about 32,000 broadband customers and 125,000 service subscriptions overall.

4. CallPlus: 20,000 broadband customers and 120,000 overall.