Wednesday, February 24, 2010

Telecom NZ: Bye Bye Paul Reynolds

That squiggly new Telecom NZ [TEL.NZ] logo is starting to look like the most prophetic image for a company's future, rather than representing "anything the customer wants" in a positive way it currently seems to be telling customers that we don't know what the hell we are doing, we don't really care and the future looks grim - for customers as well as Telecom.

Four XT outages since December have led to the resignations of Telecom's chief transformation officer, Frank Mount, and Alcatel-Lucent's New Zealand head, Steve Lowe and Telecom shareholders have so far seen the thick end of $15 million go south for compensation packages for lost XT coverage.

We have yet to see the losses that are surely mounting from not only existing customers deciding to leave the network but also new customers deciding to go elsewhere instead of with XT.

When launched in August last year with much fanfare and Richard Hammond, Anna Streton and Zoe Bell fronting an expensive marketing campaign, XT was going to be the next big thing in mobile in this country with world-class coverage second to none.

It turned out to be a turkey that was introduced in a slap dash way without sufficient financial backing where it counts - spending enough on building the network.

Vodafone New Zealand spent more than a billion dollars building their network and that was many years ago. Telecom NZ spent around $600 million stitching their apparent equivalent of two cans and a piece of string.

Of course Telecom NZ have a history of cost cutting (except when it comes to executive pay packets and buying AAPT) Teresa Gattung, former CEO, introduced a CDMA mobile network in the 1990s when urged not to by experts. It was a redundant system that only a handful of countries used but it was cheap and it was duly purchased and that is why the XT network needed to be built.

Many of the same executives that were on the Telecom board when CDMA was introduced are still on the board today and it seems the failure for Paul Reynolds to look back on company history means he is repeating the same old mistakes. This has become Telecom NZ company culture - think short-term, ignore the obvious and hopefully it might go away. Clearly that extends to customers as well.

For Telecom shareholders the scenario is starting to look even worse. Long-term, shareholders haven't done particularly well and the XT mobile failure means that future performance looks grim. XT was going to be the new growing revenue stream for the company as their other divisions wallow in negative revenue growth but that has been put on hold temporarily.

If the XT network isn't fixed and fixed properly soon, consumers will have less faith in Telecom's mobile offering than they already do and losses for the company and shareholders are going to be significant - possibly the straw that broke the camels back, which happens to large monopolies as their arrogance blinds them to reality.

Paul Reynolds accepted a total package of around $3 million last year and he received more than half of that in performance incentives (hello!) and Telecom shares. This was in a year that profits and the share price were substantially down

Paul is Telecom NZ CEO, he is ultimately responsible for company performance and he gets paid handsomely for it.

Saying sorry, as he has admitted (see below) is simply not good enough.

He has to do the right thing, he has failed and the company he heads is in turmoil because of it. Paul needs to fall on his sword.

I don't expect this to happen because of that Telecom culture again, many Telecom directors and execs have made blunders costing millions and left years after with millions of shareholder bonuses in their pockets - hi Ms Gattung.

Telecom shareholders need to put pressure on those at the top before the company disconnects, for good.

Telecom NZ shares were down 6c to NZ$2.30 at close of market yesterday on higher than average volume. On the NYSE this morning NZT shares are down nearly 5%.

Expect another rorting today on the NZX.


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  1. I think the CEO should stick around and fix the problems. Likewise Telecom's CTO, Frank Mount, and Alcatel-Lucent's New Zealand head, Steve Lowe should have stayed on and fixed the problems/mistake. It seems too easy to stuff up & then walk away from it.

  2. "think short-term, ignore the obvious and hopefully it might go away. Clearly that extends to customers as well"

    I had a good chuckle to myself at the phrasing of that sentence.

    Stock is definitely worth watching though, falling knives to not fall for ever.

    At risk of stating the obvious: A bottom will form somewhere south of $2, and will be a great place to buy.

  3. SB, clearly there is upside for this stock from lower stock price levels. Long-term though this stock appears to be a loser. Over the last 18 years the company has had a 0% return.

  4. Anon, as I said somewhere else Paul has already had 3 goes at "fixing it". He has failed 3 times. He needs to do the right thing and walk.


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