ADSL too pricey for a cost-cutting Telecom

Speculation that Telecom will seek to deploy ADSL, which allows high-bandwidth services over existing copper wire, seems misguided, as the corporation's chief financial officer focuses on cost-cutting and CEO Rod Deane notes that 'doing new things is expensive'.

The costs of ADSL may prove too high for the new technology to be commercially viable, says Telecom chief financial officer Jeff White.

ADSL has been seen by many as being the way for companies such as Telecom to offer Internet and cable TV services down the existing copper network. Telecom has been testing the technology and industry sources suggest the trial has proven highly successful.

“Currently the costs of ADSL are prohibitive,” says White.

If Telecom could use ADSL or some other technology to deliver its Internet service, Xtra and First Media cable TV offering, it could achieve a major reduction in the overheads necessary to deliver those services, which are currently — as its nine-monthly results last week showed — pulling income down.

Telecom’s net earnings for the past quarter were down just over 8%, to $167.2 million. If one removes the First Media and Xtra ventures, plus trouble-plagued Australian subsidiary Pacific Star, the quarterly net earnings show a 4.1% increase. CEO Roderick Deane, who described the result as “not unsatisfactory”, also points to reductions in prices and increases in volumes as contributing factors.

“Our cost performance is not as it should be,” he says.

The company is about to embark on another major cost-cutting exercise, headed by White. Deane talked at a press briefing last week of the need to managed the decline in margins as Telecom’s traditional areas of revenue become commodities.

“And the value-added part of our business will become commoditised in any event, so it's an issue of how we manage that.”

The company is building out from its traditional business in ways such as direct mailing users of its Xtra service and asking if they feel the need for a second line to the home.

“The major challenge for the coming year will be productivity improvements and cost control as Xtra and First Media develop,” says Deane. “Doing new things is expensive.”

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