Telecom is poised to reveal its spinoff plans

By Rob Hosking

Friday 12th May 2000

Theresa Gattung

This country's biggest company, Telecom, is likely at next week's quarterly result to give some hints about its plans to restructure the company. But the full picture is still some time off.

In an increasingly fluid global telecommunications market, the company is working out the best way to reposition its mobile business, internet provider Xtra, Australian subsidiary AAPT, and its 50% share in the Southern Cross cable project, to reflect their value.

The trick for the company is to retain sufficient control so as not to lose the ability to bundle its various products together, chief executive Theresa Gattung said.

Last week across the Tasman, incumbent carrier Telstra shied away from floating off its internet arm - for now, anyway. After publicly raising the possibility of a float-off some months back, the company decided the internet was too integral to its business to lose control of.

"There is huge customer value in being able to offer a package of products and services, particularly so in the business market," Ms Gattung said. "It means savings in time and money. Once you set up a molecular structure your ability to do that is somewhat hindered."

On the other hand, the different businesses have different characteristics and attract different classes of investors. The task Telecom and its commercial advisers are wrestling with is how to get the best of both those worlds.

The AAPT investment - Telecom now owns just over 80% of the carrier, Australia's third-largest - is a key jump in the telecommunications market of the two countries becoming one. But Ms Gattung would not be drawn on the claim by some analysts that its transtasman strategy includes a link-up with C&W Optus.

"The AAPT investment is the centrepiece of a regional strategy. I don't rule out further expansion into Australia either organically or by acquisition but there's no announcement pending. I really can't be more explicit at this stage.

"It's been a fundamental shift for the company. It would be nice to think we could become a Nokia or a Nestlé in terms of position in New Zealand, but nevertheless not bound by geography of New Zealand."

The company's shift in direction over the past 12 months had not been fully appreciated in all quarters, she said. The other significant changes were the alliance with EDS and Microsoft into the eSolutions subsidiary - "that means we no longer see the need to do everything ourselves" - and the fact residential users now used their phone lines more for internet traffic than they did for talking.

Meanwhile, on the political front, the company has to contend with the government's telecommunications inquiry. Ms Gattung insisted the perception that Telecom was jittery about the outcome of this review was wrong, with the caveat that the inquiry had it focus on the future and not simply be a way of relitigating old regulatory battles.

And she also warned the recommendations must not be too prescriptive.

"The conventional wisdom in this industry changes too quickly for that. A couple of years ago the belief was that integration of fixed line and cellular networks was the way to go. Today it is that cellular will in many ways replace the fixed line business. Three years ago the internet was a fringe thing and now, regardless of the gyrating stockmarkets, it is seen as a major engine of world growth. Eighteen months ago no one was talking all that much about the integration of cellular and the internet. Now people worry about how they are going to come together in a way that supports a wireless broadband future. It all changes that fast."

The Labour/Alliance government had probably judged public attitudes to business correctly, she said - and that was a problem. "I can't help but think they do reflect New Zealanders' attitude to big business, certainly. There's a lot of ambivalence there."

She tentatively offered a few observations, although she stressed she was not a sociologist.

"Well, most obviously, no-one has become rich investing in the New Zealand stock market in the past few years unless they've been terrific individual stock pickers.

"But it must go deeper than that. I can't help but reflect on my own parents and the sort of people who came to this country, from the British Isles anyway - they wanted to escape the class system.

"And they are desperate not to recreate that here. And they get uncomfortable about people on high incomes."

Small businesses seemed immune from that attitude - they were seen more as carrying on the revered tradition of "Kiwi ingenuity."

"But somehow that doesn't get translated into larger firms. And it certainly doesn't get translated into the sort of ongoing dialogue and mutual shared vision for the country, one which encompasses businesses both big and small, that we need.

"It's a fertile area for study and an important one."

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