Sunday, February 10, 2008

Telecom New Zealand facing a watershed period

Chart for Telecom Corporation of New Zeal (TEL.NZ)

Long term, the future of Telecom maybe uncertain but the share price has been
on a downwards trend for some time. The slight upticks in share price and reasonable
volumes make this share one for short term traders.



Long suffering shareholders of Telecom New Zealand [TEL.NZ] for a reversal of fortune for the company may have a long wait on their hands.

Friday's announcement that 2nd quarter profit was down 33% sent the share price down NZ 15c in trading, to close at $3.95 and also sent commentators into a flap about the future of the company.

Profit would have been higher if not for the sale of the lucrative Yellow Pages unit towards the end of 2007, and the continued poor showing of their Australian arm, with a drag on earnings in that competitive market.

I have been down on Telecom for many years for many different reasons and it is easy to knock one of the countries largest companies, if only for its extremely poor customer service, something it shares with the likes of alot of monopolies/duopoly's, like Vodafone NZ and the majority of the countries banks.

Telecom's problems though are multiple, deep set and are entrenched in company culture. From the top management, right down to the help desk in the Philippines or whatever the latest third world country has been used to cut costs.


http://www.in-site.co.nz/cancersociety/links/objects/TelecomLogocolour.jpg
Telecom must refocus their efforts on their
customers and spending more to update aging
technology to have good long-term prospects.


CEO Dr Paul Reynolds, said there had not been enough focus on customers.

"Telecom had made decisions about leadership, structure and focus that would help secure future momentum, based on a focus on customers".

This has been said before, Reynolds has been at the helm for 6 months but there is not yet evidence that the above has been acted upon.

Management, especially middle to lower supervisory level, still have an attitude that Telecom is a virtual monopoly, you know it, they know it and you can go elsewhere if you are looking to get decent customer service.

One specific which I encountered the other week, piling on illegal service charges(they call it a "convenience charge") for customers who pay by credit card and advising customers it is the credit card company charging it is certainly not a new and innovative way to win friends and influence customers. In a positive way anyway.

Other providers are taking customers off them though, as technology has allowed and Government imposed regulation bites, with the forced split of the group into 3 parts at the end of March.

The continuation of the "monopoly attitude" in the face of increasing competition is Telecom's biggest challenge. In the past that was great for shareholders and bad for customers, increasingly things have become bad for both parties.

The past has been filled with exceptional dividends paid out to shareholders, that was good for the first 8 or nine years, as costs were cut, from its initial inception as a government department, overloaded with excess staff, but as the last of the fat was trimmed from the company in the early 2000s the need for reinvestment of profits became even more apparent than it was years before.

Telecom's investment in their infrastructure is at least 10 years behind some of the international telcos. A plethora of 19 century copper wire is Telecom's answer to the road that 21st century technology and content must travel on and that road long ago gridlocked, to a point where we now have internet speeds at the lowest end of the world scale for a very high cost.

Like allot of investors in the stockmarket, management at Telecom have been shortsighted in their business outlook.

Short term profits have been at the expense of the long term future of the company and billions of dollars must now be invested to turn that shortsightedness around.

Hard decisions have to be made and the company now finds itself in a bit of a watershed period.

It must focus on their customers first and provide them with the best in service and the "new" technology that must come with that service and eradicate the culture that seems to still have them in a battle with those that wish to do business with them.

There must be no shades of gray towards a new long term thinking Telecom, the change must be bold, brash and black and white. Reynolds words "...based on a focus on customers..." must be the core principle on which the company is based and it must be more than words, those words must be acted upon at every opportunity.

If they bite the bullet and do those things, the short term will clearly be difficult but longer term things will get better.

If management decide that the status quo is the way to go or fail to drive a new focused Telecom hard enough, then the long-term future for Telecom New Zealand looks bleak at best.


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