Telecom after Theresa: a confused legacy

The next CEO of Telecom will be handed something of a poisoned chalice

This year, Telecom CEO Theresa Gattung vacates the bridge after having been in command since 1999. Roderick Deane’s lieutenant leaves a complex, daunting legacy for her successor, one that is marked by huge successes and equally large failures.

During Gattung’s watch, Telecom grew out of its traditional telco incumbent role to some extent. It purchased IT services companies Gen-i and Computerland, a moderately succesful move. Telecom became an Alcatel poster-boy thanks to the outsourcing of its network management to the global telco supplier giant. Likewise, US giant Lucent, now merged with Alcatel, took care of Telecom’s CDMA mobile phone network, leaving the telco to concentrate on the business side of things and enjoy economies of scale well beyond what would be possible for a comparatively small South Pacific company.

Under Gattung’s regime, Telecom succesfully stymied competition locally, leaving it the strongest player in the market by far. The list of those “fallen by the wayside”, as former Telecom industry affairs manager Bruce Parkes put it, include Australian-owned TelstraClear and every single New Zealand ISP. They currently exist only because Gattung’s strategists let them, sucking a meagre margin out of Telecom’s wholesale products.

Having assembled a crack team of lobbyists, Gattung steered Telecom away from the regulatory rocks twice. First time around, the Hugh Fletcher-led Telecommunications Inquiry in 2000 was persuaded that CDMA and GPRS cellular technologies were the local line and broadband competition of the future, and therefore only a light-handed regulatory regime was needed.

In 2003 came the infamous “back-flip” by Telecommunications Commissioner Douglas Webb, which saw the regulator reverse his position on unbundling Telecom’s local loop, despite it being best practice in all OECD countries. Gattung’s team took full advantage of longstanding government ideological reluctance to intervene and staved off regulation with an offer of crippled wholesale DSL with margins so low it bled ISPs dry.

The government went along with Telecom’s undertakings but it seems Gattung’s regulatory nous deserted her. Repeated signs from officialdom and the public that Telecom was abusing its protected monopoly position were ignored.

With Gattung in command, New Zealand went backwards in the OECD connectivity measurements and failed to meet its relatively light undertakings to the government. Telecom was now on a collision course with the government over an important social development issue, yet Gattung didn’t see the regulatory steamroller gather pace.

Across the pond, Telecom’s AAPT foray into the tough Australian market has been an abject fiasco with billion dollar write-downs instead of the envisaged profits.

Telecom is now in defensive mode, selling off profit-making assets such as its directories business to prop up AAPT and possibly also build a GSM/WCDMA network in New Zealand. It is even moving the iconic Xtra brand overseas. Gattung promised last year that we would have ADSL2+ by then, but that undertaking was worth as much as the wholesale one made to the government.

The next CEO of Telecom will be handed something of a poisoned chalice. It’s difficult to see how Telecom could break out of the mould shaped by Gattung without a complete remake — that is, full structural separation.

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