Ex-Telecom CEO uses confusion as a writing tool

Gattung memoir fails to answer important questions, says Juha Saarinen

If you bought Theresa Gattung’s Bird on a Wire to get a better understanding of Telecom’s immediate past while she was the CEO, you’ll be sorely disappointed. The book skips over several important events in the company’s history and readers are left none the wiser as to why they unfolded the way they did.

Starting as Telecom’s general manager for marketing in the wake of privatisation, Gattung “knew nothing” about telecommunications, whereas the then CEO Rod Deane knew “lots”. That was in 1994, but luckily Gattung had another five years to learn and embrace the business before stepping into the CEO role for Telecom.

The marketing and advertising field seems to be Gattung’s first love, and the book talks about it in some detail, interspersed with lots about Kevin Roberts (now a Telecom board member) and Saatchi and Saatchi.

What of the important telco decisions though? While she recognised early on that mobile is hugely important, readers aren’t told why she and Telecom backed the wrong technological horse — CDMA and EV-DO — in the race against BellSouth and later, Vodafone.

According to Gattung, she “understood from Roderick [Deane] that the government had required Telecom to sell its licence due to the view that it wouldn’t be good for competition for the two main players to be on the same technology.”

It was actually the other way round: Telecom had radio frequency spectrums that could’ve been used for GSM as early as 1990. The telco wanted more spectrum for the existing AMPS and DAMPS service and went as far as the High Court and the Court of Appeal to obtain this, while doing a deal with the Commerce Commission that it would give up its GSM-suitable frequencies if it got it.

The government didn’t force Telecom to give up its GSM spectrum in other words. What’s more, even when the telco voluntarily returned the management rights to the frequencies it had others that could be used for GSM.

What seems to have tipped the scales was the fact that Telstra in Australia used CDMA and Telecom wanted roaming ability for there. In 2001, Telecom’s CDMA network was launched, but the decision to do so is all the more curious as Gattung and her executives did a deal with Hutchison in Australia that year, “selling us [Telecom] their 3G (third-generation, essentially mobile broadband) mobile phone licence and spectrum in Australia.”

Telecom took a 19.9 percent share in Hutchison 3G Australia for A$250 million with another A$150 million of additional equity committed; Hutchison in turn took a 19.9 percent “option to subscribe” of Telecom 3G New Zealand, with A$600 million equity commitment. In total, A$1 billion of cash was committed by the two in building Hutchison 3G; of this, A$400 million came from Telecom.

Hutchison launched a 3G UMTS network in 2003 in Australia, in the 2100MHz spectrum and to this day, Telecom still owns ten percent of the Australian company that has since merged with Vodafone Australia.

In other words, Telecom was backing GSM/UMTS in Australia with hundreds of millions of dollars while picking the CDMA standard for New Zealand that Gattung knew had far fewer customers and an inferior choice of handsets. Just four years after the launch and a year after T3G EV-DO mobile broadband came out, Telecom had to drop CDMA and build a UMTS WCDMA 3G network for New Zealand. What the thinking was behind this strategy isn’t revealed in the book.

Gattung appears to have been rather disconnected from the industry she worked in. Telstra in Australia and its New Zealand operation, TelstraClear, receive unflattering mentions, ditto CallPlus. However, the ihugs, Orcons, CityLinks and other New Zealand providers that she and Telecom dealt with over the years are nowhere to be found in Bird on a Wire.

This is all the more peculiar, given the 0867 debacle of 1999, during which Gattung was “gobsmacked at the amount of coverage this matter received and the speed with which it became big news”.

Reading Gattung’s version of events, 0867 was introduced to deal with “massively increased loading on Telecom’s network” due to the rapid growth of internet traffic. Also, 0867 was there to address “a growing imbalance in fees payable by Telecom to Clear”.

What Gattung doesn’t say is that Clear set up the Zfree and CallPlus i4free ISPs, taking advantage of an interconnection or termination fees deal that Telecom had insisted on in 1996. The agreement meant that Telecom paid Clear and CallPlus, because its customers landed dial-up calls on the latter two’s networks.

Thanks to the interconnection revenue from Telecom, Clear and CallPlus could provide dial-up access for free. Telecom wasn’t happy about this, and hence 0867 came about, penalising customers that didn’t use it with a two cents a minute charge. ISPs in turn were told to put their dial-up users on 0867 numbers, and that those calls wouldn’t be covered by the interconnection fees regime.

This incensed users and PC World correspondent Geoff Palmer took Telecom to the Disputes Tribunal twice over 0867 charges incurred. The Commerce Commission battled Telecom over 0867 in the High Court and the Court of Appeal, but lost in both instances.

Despite the court victories, Gattung says “the subtext of Telecom bullying the little guy became deeply rooted” and coloured the later unbundling debate and regulation. To an outside observer it seems obvious, but it wasn’t to Gattung, remarkably enough.

One successful Telecom venture that has by and large disappeared these days is Xtra. The largest ISP in the country doesn’t even have its own website anymore, but there are still many businesses with xtra.co.nz email addresses and Telecom spent bucket loads of money to promote the ISP. All of that went pop in the Yahoo!Xtra Bubble of 2006, but why? Again, Gattung doesn’t say.

Trade Me is mentioned in passing, due to the large amount of money that Fairfax paid for it. What about Ferrit then, Telecom’s Amazon and Trade Me wannabe that set up shop in 2005 and closed four years later? It is passed over in silence.

Gattung’s reign at Telecom coincided with the massive Enron and WorldCom accounting scandals and bankruptcies and of course, the September 11 attacks and the Iraq War.

Did this make any difference to Telecom, a company with American part-owners and with many important business partners in that part of the world? Gattung’s doesn’t say.

Heading over to Australia seems to have been fraught with many difficulties and few rewards for Telecom. Faced with a hostile Telstra, Telecom nevertheless bought AAPT and PowerTel.

AAPT has been a millstone around Telecom’s neck right from the get-go, but why was it such a great idea to buy it? Gattung points to the AAPT share price being at A$5 instead of A$9, making it look cheap to Deane, but unfortunately there was a “re-evaluation downwards” of telco sector stocks within a year of the purchase. Wasn’t there anything that could be done and if things looked so down early on, why hang onto AAPT for the next 11 years and twice sink more money into it?

Dealing with governments seems to have been not so much a concern during the 90s, but a disaster area in the new millennium.

Telecom dodged the unbundling bullet in 2000 when the Ministerial Inquiry into Telecommunications under Hugh Fletcher went against it. That inquiry also established the Telecommunications Commissioner role, with Douglas Webb appointed as the first holder of that office.

Gattung writes that “at the time I didn’t have a strong view as to whether or not having a regulator was going to have a strong impact on us.”

Over the next few years, Webb and his team had a huge impact on Telecom, which fell out of favour with the government in a spectacular fashion. Who can forget the row about the missed wholesale targets in 2005-2006 for instance? Gattung to this day insists that Telecom committed itself to a third of its projected growth in broadband coming via wholesale, and not a third of the total which is what the government expected. After that, unbundling of the local loop was a fact.

Perhaps the most telling point in Gattung’s book is that the ex-Telecom CEO doesn’t appear to believe in broadband. There’s no link between broadband and productivity, she contends and refers to such experts in the field as The Listener and Telecom-connected researcher Bronwyn Howell.

The reason broadband uptake was so low during the Gattung era was due to free local calling making dial-up attractive, and New Zealand’s GDP. It wasn’t because of unattractive offers such as Jetstart or the eye-wateringly expensive Jetstream 20000 and 30000 plans that cost $1600 and $2400 a month respectively, plus GST and ISP costs and still had eight cents a megabyte overage penalty charges on top if you exceeded the modest 20 and 30GB data caps, she claims in the book.

Bird on a Wire provides some insight into the Gattung era, but it doesn’t qualify as “the inside story from a straight talking CEO.” For that, you need to go elsewhere.

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Tags Bird on A WireNetworking & Telecomms IDtelecomTheresa Gattung

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