Telecom to spend large, lay off, to pull out of dive

Increased automation of customer processing, call centre offshoring, large investments in mobile networks and fibre, and an expansion of Gen-i across the Tasman, are among Telecom New Zealand’s plans to turn the company around.

Acknowledging that investors had experienced a “rough ride” as the telco’s bottom line had been declining by 6% to 8% per year, chief executive Paul Reynolds told a meeting of shareholders and analysts in Sydney this morning that the company would spend $1.1 billion in the coming year to contain the decline.

Key growth areas in the return to profitability would be broadband, building the foundation for future services, mobile networks and ICT. Telecom will invest heavily on fibre to node and a new mobile network as “we can’t expect to crank up the old machine and expect to do well in the new markets.”

Reynolds told investors that many of Telecom’s problems reflected those of overseas fixed line telcos, but some parts of its business bucked international trends.

One bright note is Telecom’s ICT arm, Gen-I, which has already captured 12% of the IT market in New Zealand, will set its sights on 20% as it grows its trans-Tasman business. Profitability in this low margin area will be improved by offering “repeatable” rather than “bespoke” components.

Another difference in the local market is the sub 40% penetration of broadband in New Zealand, which compares with 60% in most European countries. Reynolds ascribes this anomaly to “the price and positioning of dial-up in New Zealand”, but there was “plenty of upside to be gained in broadband connections and market share.”

Investors will be shielded from the full effects of the $1.1 billion “capex spike” from investment as operational costs will be reduced over the same period, he says. Savings will be made by more offshoring of call centres, which have already delivered price gains of 20% to 25%.

Reynold also promised leaner network and customer operations through “partners in India” and increasing automation of sales and service functions — with a target of 60% of transactions to be conducted online.

Customers were not left out of Reynold’s speech as he outlined other “success metrics” including 80% of New Zealand being offered 10-20 MBit/s broadband on an unspecified timeframe. Customer satisfaction would be “world class” though Reynolds said he does not intend to publish precise metrics.

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