NZ's wealthy telcos stingy on investment

By Peter Griffin, Helen Twose

New Zealand is lagging behind when it comes to investing in telecommunications, even though it makes more from the sector than other developed countries, a new report shows.

The Communications Outlook report from the Organisation for Economic Co-operation and Development shows New Zealand telcos such as Telecom and Vodafone make more money as a percentage of GDP than those in any of the 29 other OECD countries.

But New Zealand spends less of its telecommunications revenue on investing back into the industry than nearly all its peers - coming in at 27 on the list of 30 countries.

The figures, which cover until 2005, show an extremely low level of investment by NZ telcos, says Telecommunications Users Association head Ernie Newman.

"The reason that we've been getting on to Third-World infrastructure in this industry is that people have not been reinvesting," Newman said.

The figures show investment has fallen in the past 20 years.

New Zealand's telecommunications investment as a percentage of the industry's revenue was 32 per cent between 1988 and 1990, when Telecom was privatised, but had fallen to 17 per cent by 2000 and was 8.7 per cent in 2005.

Only Greece and Austria invested less that year. The OECD average was 15.3 per cent.

However, Telecom says the situation has improved.

Spokesman Mark Watts said capital expenditure in the year to June 30 last year was $620 million or 9.3 per cent of revenue.

Capital expenditure was forecast at $683 million for the year to the end of last month, during which Telecom invested in upgrading its copper-line network for faster broadband speeds.

"That money has been allocated to a heap of initiatives under the general headings of maintaining the networks but also expanding its capacity, reach and offerings," said Watts.

He wasn't able to comment on the historical figures but Telecom's annual reports show capital expenditure has fallen from $1.5 billion in 2001.

Rival TelstraClear's head of corporate services, Mathew Bolland, said the company had not had the opportunity to invest.

"If you have to throw a serious amount of money at a market where you've got a competitor that can block you ... [when] we don't have unbundling yet, is it any surprise?"

Bolland said it was evidence that legislative change had not solved the problem and that market change was yet to happen.

TelstraClear spent $141 million in New Zealand last year but this year pulled out of its major investment in establishing a third mobile network.

Vodafone's general manager of corporate affairs, Tom Chignell, said so far the company had spent $2 billion in New Zealand which included the initial purchase of Bell South, buying internet company ihug for $41 million and upgrading its mobile network.

"We've always invested heavily in the mobile sector and now that we've got the opportunity, through the purchase of ihug, we'll be investing in the fixed-line sector as well."

New Zealand is also a laggard when it comes to research and development in the communications space.

Telecom, the 39th biggest telco in the OECD, spent just $9 million on research and development, or 0.2 per cent of revenue, in 2005.

Most of the big telcos spend well over 1 per cent of revenue on R&D and some have to meet legislated minimum R&D standards. In the same survey, British Telecom spent 3.7 per cent.

Telecom said it expected to spend slightly more than $9 million this year.

SPENDING COMPARISONS
Telco investment as a percentage of revenue

1988-1990
New Zealand: 32.2
Australia: 50.8
Britain: 28.6
OECD Average: 31.6

1994-1996
New Zealand: 23.4
Australia: 33.4
Britain: 19.2
OECD Average: 29.4

2000
New Zealand: 17.0
Australia: 26.2
Britain: 46.5
OECD Average: 30.6

2005
New Zealand: 8.7
Australia: 16.7
Britain: 27.3
OECD Average: 15.3

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