Telecom: Tie me Aussie-subsidiary down, sport

By Rob Hosking

Friday 18th August 2000

'Our goal is to be the best performing online and communications company in Australasia'

- Roderick Deane

Telecom's expansion across the Tasman firmed up considerably this week, beyond buying up the remaining 20% of Australian subsidiary AAPT.

Developments this week are speeding up the New Zealand-based telco's bid to straddle the Tasman.

The company has explicitly ruled out any relocation of head office across the ditch - for now anyway.

But the trend is clear: Telecom is a company focused on growth; the growth areas are mobile, data, internet and broadband services; and much of the growth in those areas will come from Australia.

"Telecom is in the middle of a major transition," chairman Roderick Deane said. "Our goal is to be the best performing online and communications company in Australasia." The emphasis was on a regional focus and "strong partnerships with complementary players."

Chief executive Theresa Gattung mentioned the recent Commonwealth Bank of Australia contract as being the sort of venture Telecom was interested in developing in Australia.

"Clearly we are focused on organic growth in Australia, as well as growth by acquisition," she said.

Commonwealth Bank - which owned ASB Bank - had 10 million customers and the relationship was likely to develop beyond providing telecommunications services, she said.

Since Telecom bought a majority holding in AAPT last year the subsidiary had also picked up major business from other New Zealand firms with business in Australia, including Carter Holt Harvey and Heinz Wattie's.

The pan-Pacific Southern Cross cable, half-owned by Telecom, will come onstream by the end of the year. That will provide an explosion of bandwidth to both New Zealand and Australian customers and quicker and more direct access to the US.

"This is going to enable New Zealand and Australian businesses to plug into the North American market in a way that has not been possible before," Ms Gattung said.

Mobile continues to surge as a part of the business. Total mobile revenue rose from $502 million to $546 million, or 8.8%. The average cost per minute fell 4.7% but this was more than offset by the growth in mobile connections over the period.

Mobile penetration in New Zealand recently hit the 40% mark and while the balance of advantage in new connections recently swung in rival Vodafone's favour, Telecom still has by far the greater number of users.

In addition Telecom gets considerable revenue from calls to cellphones from its fixed line network. Call minutes to cellular phones were up nearly a third for the year, from 429 million to 570 million, and the revenue from calls to cellular phones rose 26.6% from $218 million to $276 million.

Mobile will become a larger part of the business. The CDMA network would begin operating by the middle of next year and Telecom already had more than half the resource consents necessary from local councils for extending capacity on cell sites, Ms Gattung said.

In the data area the growth is even more apparent. Overall internet revenue - which includes Telecom's own business, Xtra, plus revenue from providing connections to other online providers - grew more than 50% from $43 million to $67 million.

The number of customers signed up to Xtra was up nearly 40%, and they are spending much more time online. The number of dialup hours exploded from 17 million to 47 million over the year. Also in the data area, more businesses are taking up Telecom's ISDN lines - revenue grew nearly 36%.

Meanwhile, the firm's traditional areas, while they still produce a major part of the firm's revenue, continued to decline.

Local service produced $849 million for the company but this was down from $858 million the previous year. Similarly, national call revenue dropped 15.4%, down to $301 million. Call minutes rose 5.6% but special offers and other reductions saw the average price drop 20c.

Price competition also affected international call revenue, which dropped 7.2% to $194 million. Again, the number of call minutes was up - this time by nearly 25%.

The transition to those growth areas and acquisitions such as AAPT require more reinvestment by Telecom. Hence the change in dividend policy announced with the result. This will now be a ratio of about 50% of net earnings, down from the previous level of 70%.

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