This morning we announced our half-year results for the period July to December.
While comparisons are complicated by the Chorus demerger, on an adjusted basis we achieved a slight improvement in earnings as reduced operating costs and changes to Chorus trading arrangements more than offset a decline in operating revenue. We achieved good growth in new mobile customers since closure of the CDMA network, and consolidated our broadband market share, but the result underlines that we face fierce competition across all our business units. We had to provide guidance to investors that our earnings outlook for the second half of the financial year is soft due to revenue and margin pressure across most of our product lines and market segments.
It was good to see so many of you at my sessions in Auckland and Wellington last week. If you couldn’t make it along, you can see it here.
I’m hoping you took away that our most immediate challenges are the need to simplify our business fast, and to reduce our cost base even faster.
We can’t continue with the legacy approaches associated with our past as a traditional telco. Our operating structures and processes are still highly complex. They’re a big reason why we have significantly higher operating costs, and employ more people, than our competitors in both telco and ICT.
This complexity and higher cost base means we’re literally not competing on a level playing field. Right now, we can only match our competitors on price at the expense of our margins and that’s not sustainable. We’ve also got to make some tough decisions about what business areas we will operate in, and those that we won’t anymore. We must address these issues up front to succeed in today’s fast-changing marketplace.
I see no sense in waiting until next year, or the year after, to sort all this out. As I get around the company I hear you loud and clear when you say you want me to make the big decisions and just get on with it.
So, what does ‘getting on with it’ look like?
I’ve charged each member of my leadership team with getting their business unit fighting fit to implement our new strategy as soon as possible – that means over the next few months. I’ve told them to question everything we do, then decide what’s right for their business unit and for the group, as we realign for the future.
This will mean changes right across the business and will very likely impact all of us in one way or another. For example, I’ve asked for a full rethink of the performance review process and STI scheme as I don’t believe it’s right for what we need. We all need simple and clear incentives, and far less red tape and bureaucracy in our performance management systems.
I wasn’t surprised one of the most common responses I got over the past week was: “nice rhetoric, but what’s actually different this time?”. What’s different is I’m not going to be the guy who starts down this path and then doesn’t complete the job. The other common question was about how many people stand to lose their jobs. We’re simply not in a position to talk numbers today - we need to do more work before we can share that level of detail. However you will hear more from me over the coming weeks, as well as from your business unit leaders.
As part of our results announcement, we’ve signaled publicly that we’re moving quickly to implement far-reaching changes in our business. I expect this will attract plenty of media coverage and commentary, together with the usual dose of journalistic speculation.
I’m not going to try to downplay the likely scale of these changes, nor sugar coat the impact it will have on many of you. But as much as I’m allowed to under stock exchange disclosure rules, I promise to keep talking to everyone within Telecom first about what we’re doing, why we’re doing it, and how it might impact you. I also reiterate the commitment I’ve made to getting to the future - fast, fairly and fearlessly.