What Reynolds leaves behind

Assessing the legacy of the departing Telecom CEO

Paul Reynolds began as Telecom CEO in September 2007 and oversaw the implementation of operational separation, the launch of the XT network and the split of the telco into two separate companies. He has resigned and his replacement named as Auckland International Airport CEO and former Telecom COO Simon Moutter.

But when Reynolds departs, what will his legacy be? Here’s a top five assessment of the Reynolds’ years.

Operational separation/LLU

It was his experience as chief executive of British Telecom’s wholesale division during that telco’s voluntary split into three divisions which made Reynolds so valuable to Telecom. He was involved in negotiations with the then ICT Minister David Cunliffe over the nuts of bolts of the undertakings (the determination was finalised before he officially began the role) but he later claimed it was too harsh. “Telecom NZ has embraced operational separation, but because it was born out of an adversarial relationship, the detail of it is much more prescriptive than the UK model,” Reynolds said in late 2009.

Of course by then the landscape had changed and he was trying to work out how the company could take part in the National government’s $1.5 billion Ultra Fast Broadband programme.

Telecom asked – and received – five variations to operational separation. But it came unstuck with Telecom Wholesale’s “loyalty” offers which the Commerce Commission said was in breach of the undertakings.

Basically the telco was offering substantial discounts in return for a commitment from the service providers not to go to wholesale competitors taking advantage of local loop unbundling. Telecom agreed to settle for $1.6 million.

LLU has now hit its stride with more than 150,000 lines and 149 exchanges unbundled and Telecom’s competitors claiming an ROI in less than three years.

Reynolds ensured Chorus never let up on its ambitious fibre to the node programme which saw 3600 cabinets deployed across the country in a four year project that began in 2008. In April 2011, with the decision on UFB pending, TelstraClear CEO Allan Freeth made the observation that with 86 percent of the FTTN build complete, Chorus was a shoe-in to get the bulk of the government contract. “Having heard they’re at 86 percent — if you don’t give it to them, they will just compete. And guess what? You have two fibre networks competing with each other.”

Reynolds says that the heavy lifting of operational separation occurred in 2008 to 2010 when “we carved out Chorus” (in the 2008/09 year Telecom investment peaked at $1.2 billion). Operational separation set the company up for structural separation, but not all the money was well spent.

At its financial results in August last year the company wrote off $257 million in assets relating to its fixed line copper network and its operational separation undertakings. The bulk of this was the IMS software bought to enable a VoIP solution that was to replace the PSTN (moving to VoIP before 2020 had been part of the original undertakings).

Mobile

The decision to ditch CDMA in favour of building a brand new 3G UMTS mobile network (to be branded XT) at a cost in excess of $500 million was made prior to Reynolds’ arrival, although he did make the call not to build a 2G network. It was an ambitious build and its launch in May 2009 was followed six months later with a series of high profile outages. A report from UK-based Analysys Mason blamed the outages on the radio network controller (RNC) in Christchurch which controlled all mobile traffic south of Taupo. The report recommended Telecom install eight RNCs in a year.

A costly upgrade programme ensued, and Telecom paid out millions in compensation to affected customers (it also received a hefty amount from its technology partner Alcatel-Lucent) but where the telco really paid was in the public’s perception of a failed network. It attempted to put this right by running a television campaign in which Reynolds was seen fly-fishing in a remote South Island river and taking calls on his XT mobile.

Reynolds also decided not to allow TelstraClear to run its MVNO on the XT Network from the get-go, so the telco took its substantial mobile business to Vodafone. Telecom has since acquired CallPlus as an MVNO and launched its own sub-brand, the youth orientated Skinny.

Shareprice vs salary

Telecom’s shareprice was sitting at around $4.50 in mid-2007 when Reynolds’ predecessor Theresa Gattung left – she’d managed to half the value during her tenure. So how did Reynolds do? As of May 1 Telecom’s shares were priced at $2.63 and Chorus at $3.53 (at the share split last November, Telecom stockholders received one Chorus share for every five Telecom shares they held). During the dark days when it was unclear if Telecom would secure the UFB, the share price fell well below the $2 mark. But while investors suffered financially staff salaries never appeared to, with Reynolds himself collecting a multi-million dollar pay cheque every year.

Public relations

Reynolds told a TUANZ event shortly after arriving in the job that telecommunications in New Zealand was “an industry at war” and he indicated he would work towards creating a more cooperative industry. Telecom was a founding member of the Telecommunications Industry Group (TIG) in 2009 — a kind of CEO’s club which folded after a year and is now part of the Telecommunications Carriers Forum.

Reynolds has taken aim at the government a couple of times over the UFB – which he had not foreseen. His main beef appears to be ‘heavy handed regulation’. But that’s a standard telco complaint and is usually preceded by claims that their revenues are falling (not so according to the Commerce Commission’s market reports which show that for the past six years total revenues for the industry have remained at just under $5 billion a year).

He talked a lot about customers and Telecom staff satisfaction surveys were apparently better under his watch, but could the lingering public image of Reynolds be of a highly paid fly-fishing defender of his company’s mobile network?

Succession planning

There were some high profile departures during Reynolds’ tenure. Chief transformation officer Frank Mount was let go over the XT outages, Telecom Wholesale CEO Matt Crockett resigned when it was clear his division wouldn’t survive, “Mr XT” Paul Hamburger, who famously commuted to work from Florida, departed, and so too his replacement Kieran Cooney following the disastrous rugby world cup campaign (abstinence!).

The most successful member of Reynolds’ executive team is arguably Mark Ratcliffe who is the Chorus CEO and is largely credited with sealing the UFB deal with the government. But Ratcliffe is a product of Theresa Gattung’s executive team – as is the new Telecom chair Mark Verbiest, and Telecom CEO-elect Simon Moutter.

In a year from now it might seem as if Reynolds was never here.

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