Winds of change stir Gattung's tightrope

By PETER GRIFFIN

When you ask people "in the know" to comment on Theresa Gattung's performance as Telecom's leader, the phrase "left holding the baby" seems to pop up regularly.

It's clear that by the time Roderick Deane departed from the top job, the winds of change had started to blow against Telecom.

Telcos worldwide were falling out of favour with investors, Clear and TelstraSaturn were beginning to establish market niches for themselves and the prospect of regulatory changes was starting to undermine Telecom's market dominance.

Those trends aside, many argue that the questionable balance sheet and technology decisions inherited by Ms Gattung pose the biggest challenges for the company.

"[Telecom's performance] hasn't been great but I don't think that's been Ms Gattung's fault," says Bruce Sheppard, chairman of the Shareholders Association.

"It's fairly clear that the previous management style of Telecom, since privatisation, had been to fully distribute profits, retain no earnings and bone the tangible equity out of the balance sheet to fund share buy-backs."

These factors made expansion into Australia, next generation mobile and broadband networks understandably difficult.

He says the influence of a dividend-hungry major shareholder in American telco Verizon, which has just decreased its stake to 21.5 per cent, is likely to have had a major influence on Telecom's strategy.

"There's probably a case to be answered in terms of investment in the company," says one senior analyst.

"They ended up paying almost 100 per cent of earnings in dividends."

In 1999 and 2000, Telecom delivered dividends of 46c a share.

The dividend for the last financial year was 20 cents, signalling a change in policy based on the company paying out around 50 per cent of its net earnings to shareholders.

The $2.2 billion investment in AAPT, which operates through a mix of Telstra reselling, 2G wholesaling, 3G aspirations and infrastructure ownership and leasing, also attracts criticism.

Many accept that Telecom needed to secure new sources of revenue but there is less agreement on how that should have been done.

"They buy something that is almost as big as themselves with no equity. They do it with debt.

Does it sound like a flying Koru?" says Mr Sheppard.

"[Gattung's] on a tightrope. If she stuffs up AAPT, she doesn't have to look much further than Auckland and the headquarters of Air New Zealand to see what happens."

From an operational point of view, Ms Gattung is respected as a solid, capable leader.

Her competitors, those who will comment, are quick to praise her.

As head of Telstra's wholesaling division, Rosemary Howard, TelstraClear's newly appointed chief executive, used to negotiate with Ms Gattung over Telecom's access to the Telstra network.

Ironically, their roles are now reversed.

"She was a key part of taking what had been quite an adversarial, litigious relationship, to one of us treating them as a wholesale customer," she says.

But on Telecom's move into Australia, she is non-committal.

"It is an interesting growth strategy and Theresa's very much a part of that." She says it is too early to gauge the success of the move.

In an industry driven by technology, Telecom has drawn mixed reviews over its investment decisions.

Auckland businessman Chris Jones, whose company, Argent Networks develops billing platforms for mobile networks, says a number of Telecom's major technology decisions on both sides of the Tasman appear to have been not technologically, but financially driven.

He points to Telecom's move to develop a CDMA network, rather than investing in one based on the more flexible and widely used GSM and GPRS standards.

Telecom had also lost the advantage in pushing the features of its mobile network.

"Vodafone has won the war on value add. They did it with things like roaming and SMS.

"In the mobile space it's not about the number of subscribers you have any more.

"It's about data-mining your subscriber base to see what their needs are, and how valuable they are."

He says Telecom's future success will be measured by how quickly it can respond to the ever-growing competition, in both the mobile and fixed-line markets.

He gestures from the window of his headquarters located on the fringes of Auckland's central business district to make his point.

Embedded in the footpath below is a steel grate engraved with the Clear logo, signalling an access point to the company's fibre network.

A similar grate across the road carries the UnitedNetworks insignia.

"Now I can move traffic up the hill to CallPlus and then out of the country, virtually without touching Telecom's network."