What does the future hold for Telecom New Zealand

By Steve Biddle, in , posted: 18-Oct-2008 10:40

Telecom New Zealand. State owned telco turned monopolistic operator. Pride of the NZ sharemarket. Cash cow for shareholders.

Now it's faltering with a share price that's currently trading at $2.23 which is it's lowest price since floating. It's just announced it's spending over $500 million building a new WCDMA mobile network (several hundred million over previous estimates due to a change in technology) and is currently in the middle of a multi billion dollar NGN rollout. This powerhouse is now stuck at sea with no engine waiting to be rescued. But who can rescue them?

First we need to establish who got Telecom in this mess and there is only one answer. Theresa Gattung and Rod Deane. Dean's misguided attempt at maintaining his his powerhouse monopoly and Gattung's easy does it approach along Dean's path has ruined Telecom. The assets have depreciated, the profit generating machine has gone. Even the customers are going too, unhappy with the products & services that don't deliver meet their needs. Investors stayed with Telecom for two reasons - good dividends and tax credits, unfortunately when you investors who don't care about a company following a flawed business model but are only there for their return you know you have a problem. Do I feel sorry for people who have lost money with Telecom shares? Not in the slightest. Your support of the board and executives has put Telecom in the position it's in today.

Telecom now has a CEO who knows his stuff. I know several Telecom staff who have met Paul Reynolds and love his approach to business. Not only is he a manager he also knows his stuff - BT's 21CN network was largely his baby. His biggest challange lies ahead, can he start the engine again?

So what can save Telecom? After years of no competition in the NZ marketplace Telecom are now the underdog. Vodafone controls the mobile market and far from being the good guys now control upwards of 75% of total mobile voice traffic in New Zealand. Telecom has lost out significantly to TelstraClear in Wellington, the Kapiti Coast and Christchurch with large numbers of customers moving to TCL's own HFC network. Telecom face serious competition from unbundled services in in Auckland (and soon to be nationwide) and Telecom are very slow off the mark at offering next generation products such as a consumer and small business VoIP service, a market that is currently expericing good growth.

So what would I do?

First off - Telstra invests money into Telecom for a stake in their mobile busines.

Sound far fetched? So are plenty of other things. Think about it however and it makes sence - Telecom mobile is a big hole that has a red tarpaulan over the top of it. They have been seriously hurt by Vodafone and need to change things drastically if they want to hurt Vodafone. Telstra have plenty of cash and need a presence in NZ, particularly in mobile. Telecom still holds a strategic investment in 3 Australia with Telstra so do have a working partnership with them.

Let Telstra invest their money and establish true zero rated roaming across the ditch. This has the potential to really hurt Vodafone because they in effect have always "owned" the roaming market despite Telecom's best efforts. Why should there be inbound roam forward charges between both countries? 3 have already pioneered the zero rated on network roaming concept across all their majority owned networks, it is no big deal. Roaming is still a cash cow that the EU are trying to seriously curb, the reality is high roaming rates are nothing but greed from carriers. While you're at it look at bringing the 3 brand here - a MVNO isn't ncessarily bad if it's on your network.

You have to significanty increase the value for money customers receive. Get rid of per minute billing and move back to per second after the first minute. Don't rip your customers off. They don't like it. Voice usage should be well over double what it is now, this doesn't need to be done by cutting rates but by significantly increasing the caps available to customers. Significant numbers of customers could easily be moved upwards towards the $50 per month APRU target if they feel like they are getting value for money.

Introduce flat rate plans.

Your current flat rate plan is a joke. It's obvious however it was never actually designed to get any people on it and certainly didn't hurt your business because you have bugger all high end customers anyway, they have all gone to Vodafone. You put a price point in the market which you thought could hurt Vodafone but it's had virtually no impact. Dropping this to $199 per month would. Tie customers into a $199 36 month contract and you'll hurt Vodafone badly. They will have no option but to match it, something that will seriosuly hurt their business.

Keep your customers happy.

Customer loyalty isn't hard. You need to make your customers feel welcome. Give them free airtime every so often as a bonus. Give away prizes. Make your customer feel happy to be Telecom customers.

Take data seriously.

You've attempted to so far but this can obviously be improved. Introduce casual prepaid data packages that can be added to any plan ($30 for 1GB that is valid for 6 months). Slash existing data packages. Data is now a commodity item and is no different to SMS messaging was 6 years ago where the model for usage has now changed significantly and you're past the stage of simply ripping off the early adopters. Now mobile data is mainstream. Vodafone's $1 a day offering was a start but can be easily improved upon - why when the effective rate for the first 10MB is 10c per MB should there then be a 1000% increase to $1 per MB for additional data? That's just making customers feel like they are ripped off and is actually discouraging data usage.

And last but not least. Don't tie customers to plans. Sure - if a customer wants a free phone then do this. Infact give them an incentive to sign a term contract. But don' don't don't force all your customers to enter a term contract. This is plain stupid and simply stops potentnail customers from signing up.

If you offer the best value and keep your customers happy then they won't want to leave. It's not rocket science.

Good luck Telecom. You're going to need it.

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sbiddle's profile

Steve Biddle
New Zealand

I'm an engineer who loves building solutions to solve problems.

I also love sharing my views and analysis of the tech world on this blog, along with the odd story about aviation and the travel industry.

My interests and skillset include:

*VoIP (Voice over IP). I work with various brands of hardware and PBX's on a daily basis
  -Asterisk (incl PiaF, FreePBX, Elastix)

  -xDSL deployments

*Structured cabling
  -Home/office cabling
  -Phone & Data

*Computer networking
  -Mikrotik hardware
  -WAN/LAN solutions

*Wireless solutions
  -Motel/Hotel hotspot deployments
  -Outdoor wireless deployments, both small and large scale
  -Temporary wireless deployments
*CCTV solutions
  -Analogue and IP

I'm an #avgeek who loves to travel the world (preferably in seat 1A) and stay in nice hotels.

+My views do no represent my employer. I'm sure they'll be happy to give their own if you ask them.

You can contact me here or by email at stevenbiddle@gmail.com