The end of Telecom NZ as we know it

The latest results from Telecom New Zealand were largely academic – a steady-as-you-go report while the real interest of the company has already moved on to the future, based on the rollout of the FttH network and the structural separation of the company.

The company seized the opportunity to write down a very large section of its assets related to its copper network, which would become obsolete under the new FttH plans. Now was the right time to clear the decks and get into the best shape possible for the next new phase of its life, where it will be split in two, each half reporting on its own from next year on.

This will necessitate significant changes to the company, its structure and systems, and its assets. Until now many of these systems and processes have been set up to maximise the benefits of a vertically-integrated monopoly. All of this will need to be reviewed under the new structure and many of the systems will have to be replaced or discarded altogether.

One of the lessons learned from the past is that tweaking existing systems to make them perform in a changing environment simply does not work. Over the last two decades hundreds of millions of dollars have been spent on back-office systems and middleware. In the future similar amounts would need to be spent to maintain these systems, which remain inflexible and offer no real opportunity for sophisticated marketing and customer service aimed at, for example, lifelong relationships with customers.

So it is sensible to scrap many of these and move forward with new systems, which cost a fraction of the legacy systems and are much easier to maintain and upgrade.

The company has a once-in-a-lifetime opportunity to make changes that would enable it to set itself up for a future where personal and interactive relationships with individual customers will be required. (Some of these changes have to be made anyway in order to adhere to the requirements set by the government for the company’s structural separation.)

This will so significantly change the two new companies that will evolve from the present Telecom New Zealand that the current results are largely irrelevant.

Financially the company is well set to move forward – first of all with the government subsidies available for the FttH rollout, and secondly because of the protective measures that place most of the financial risks related to the FttH network onto the government.

Of course one element of the current business remains very relevant and that is the mobile service.

Competition from 2Degrees has largely affected Vodafone, and this will create new sets of dynamics in the future. In comparison to Australia, for instance, the country has an under-developed mobile broadband market, and significant competitive action is expected in 2012, the year Telecom has indicated it will shut down its CDMA system. There is a possibility that the fortunes have changed for Telecom here and that after the massive rationalisation of its various mobile networks it will now finally be able to compete in a more effective way.

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