A month ago I questioned the wisdom of AAPT’s ‘strategy’ – to lose half of their customers (from 900,000 to 460,000 within 18 months).
The company has now launched an aggressive $20 million advertising campaign to win new customers, providing significant line rental discounts to new customers. These discounts are scaled, based on the monthly spend of customers and are reduced to zero for customers who spend $200-plus a month.
I can’t help wondering why any company would let 450,000 customers go and then launch an expensive campaign to win them back. This just doesn’t make business sense to me.
But, then, maybe it has more to do with politics than with business.
AAPT (read Telecom New Zealand) is facing very serious competition from TelstraClear in New Zealand. And I perceive this to be the real issue – Telstra’s aggressive move into New Zealand only began in earnest a few years ago after Telecom New Zealand bought AAPT and, as I said at the time, this signalled the start of the game of tit-for-tat that continues up to the present day.
Apparently TCNZ has now realised that its strategy in Australia is proving to be a disaster. It is rapidly losing its business here, AAPT is dramatically reduced in size and also, of course, its value has dimished. In the process TCNZ has lost any leverage it had in relation to its negotiation position with Telstra, as AAPT is becoming a less significant player in the market.
Apart from the fact that AAPT has lost a large chunk of its traditional business it has also failed to position itself as a significant player in the broadband market. This, again, is a reflection of the broadband situation in New Zealand, which is even worse than that of Australia (less than 2% penetration).
Also its strategy in mobile is a bit of a mess. In Australia AAPT is a reseller of the Vodafone service, the very company that is its archrival in New Zealand. (Vodafone caught Telecom napping in the mobile market in New Zealand and Telecom lost close to 50% market share of the NZ mobile market to Vodafone.)
The company has now also aligned itself with Hutchison in Australia, in the hope of becoming an important 3G player. However, those who still believe in a thriving residential 3G market are, in my opinion, misguided and, while there are niche opportunities in 3G, the investments made by both Hutchison and Telecom will not deliver a return appropriate to a niche business.
So I believe that the latest strategy launched by AAPT, based on line rental discounts, should be viewed as a political tactic aimed at repositioning itself against Telstra. The company is aware that, to save its skin in New Zealand, Telecom will have to attack Telstra and the obvious place to do this is in Telstra’s home market – Australia.
The endgame, therefore, is aimed more at getting Telstra out of New Zealand, or at least making life as difficult as possible for them, than at saving AAPT. There is a real risk that the value of the overall market will contract significantly if a more general voice price war breaks out and this, of course, would damage Telstra far more than any other player in the market. However, it is unlikely that anybody else will join AAPT in this price war and it still has to be seen if Telecom/AAPT has the stamina to stay put.
In the short term, the discounting action might have the effect of revitalising AAPT. However, the long-term value of price wars is questionable – and with little or no value-add business on offer, margins will be extremely slim, profitability will be low, and I can’t see a new business on the AAPT horizon that will transport the company into better times.
AAPT – Company Analyses
New Zealand – Analysis – Industry restructuring across the Tasman
New Zealand – Analysis – Telecom vs TelstraClear
New Zealand – Analysis – Market Overview 2002-2003