KEY POINTS:
The fact that Telecom's new chief executive will be based in Auckland and not Wellington can only be a good thing.
Chairman Wayne Boyd said yesterday he expected the CEO to work in the country's largest city. He shied away from saying the head office would also move
north from Wellington, but once the CEO moves the head office is sure to follow.
Rather than being just a kilometre from the Beehive at the other end of Lambton Quay, the new CEO will look out over New Zealand's business capital.
With any luck the change in location could also bring a change of focus at Telecom - from a company obsessed with holding back the tide of regulation at any cost into a company seeking growth.
Ultimately Telecom's focus on fighting regulation held the company itself back and far too much of management's time was taken up with lobbying the Government over regulations. It was this that cost chief executive Theresa Gattung her job yesterday, even if it was her decision to leave.
Her fate was sealed on May 3 last year when the Government decided to break open Telecom's network to competitors.
From that moment on, her position as chief executive of the company became untenable.
Gattung had presided over Telecom's strategy of resisting regulation at all costs. For several years this had paid handsome dividends, making Telecom one of the country's best yielding blue chip stocks.
But her blindness to the growing impatience in Government with Telecom was a serious weakness.
"The Government is way too smart to do anything dumb here," she said last March in words that have come back to haunt her.
When chairman Rod Deane resigned last June, Gattung lost her chief supporter and the man who appointed her to the top job. Her time was up.
Telecom's second quarter results yesterday highlight the challenge ahead for whoever is brave or perhaps foolhardy enough to step into the chief executive role. After adjustments, the company's expenses grew 5.7 per cent while revenue grew just 1.8 per cent, continuing the pattern of recent quarters.
This is the result of Telecom's transformation away from an incumbent telco that could comfortably sit back and rely on its landline business to bring in healthy revenue with fat margins.
Deregulation, competition and technological advancement mean those days are long gone. Telecom is having to spend more money on capital and operations just to stand still. The new CEO will have quite a job transforming Telecom into a growth company.
Blocking move
Meanwhile in Australia, Telecom is far from certain to win its $400 million bid to take over junior telco PowerTel and merge it with AAPT - a difficulty that will probably warm the hearts of many shareholders.
Telecom has the support of the PowerTel board and management, and an option to buy a 10 per cent stake in PowerTel from TVG, the Hong Kong-based fund that owns 58 per cent of the business.
That's enough to block a full takeover of PowerTel from another company such as Optus, but not enough to stop a rival winning control using a scheme of arrangement, much like Telecom itself is trying to do.
As chief financial officer Marko Bogoievski said yesterday, "it's simply the 10 per cent stake makes it a little more difficult".
Its reason for trying to take over PowerTel makes sense.
The purchase would give it control over the second-largest fixed line broadband network in Australia and would let it service about two-thirds of AAPT's business customers and about half its residential customers.
Also, PowerTel has just started to turn a profit in its own right, even without the benefits of a merger with AAPT.
But whether Telecom should remain in Australia in the first place is another question altogether. The company argues a transtasman presence is becoming more and more important to many of its New Zealand business customers. Indeed, being able to meet their telecommunications needs across the Tasman is vital to retaining those customers, Telecom says.
But a service agreement with an established telco in Australia might achieve a similar result, with little of the inherent risks.
Investors are right to be nervous.
Telecom paid $2.2 billion for the loss-making AAPT in 1999 and after a series of writedowns now values the business at just $270 million.
Bogoievski says Telecom will stay in Australia even without PowerTel, but many investors will hope Telecom loses its takeover bid and decides to exit Australia.
Outdated policy
Foreign Minister Winston Peters waded into the economic debate with his characteristic bombast this week.
In a speech to the Orewa Rotary Club he bemoaned the Reserve Bank's "outdated obsession with monetary policy".
"This year is Export Year, and yet the perverseness of New Zealand's monetary policy operates disastrously against export interests and encourages New Zealanders' obsession with consumerism and multiple house-buying."
So is he saying interest rates are too high and pushing up the dollar, or not high enough to discourage property investing? Or just that he doesn't like interest rates?
Peters' rhetoric may be popular, but he seems to have forgotten that by getting inflation under control the Reserve Bank's "outdated obsession with monetary policy" has laid the framework for nearly a decade of strong economic growth - the best period of sustained growth since the 1960s.
* Christopher Niesche is editor of the Business Herald.
