KEY POINTS:
It's time for Telecom to go one step further and get a new major telco shareholder with the expertise and proven IP to fast-track moves to ramp up its broadband capacity and do its bit to invest in next-generation networks.
British Telecom executive director Paul Reynolds, newly appointed
as new chief executive of Telecom, has the proven track record to tackle the company's big management issues.
But Reynolds doesn't bring with him the necessary chequebook or intellectual property to back the multimillion-dollar investment that is desperately required to lift Telecom's performance.
It is a national scandal the present Telecom board is still more intent on rewarding existing shareholders by returning them some $1.1 billion from the $2.4 billion directories group sale instead of using that so-called excess cash to invest in stepping up the company's performance.
This focus on shareholder returns at the expense of customers has been a feature of Telecom's dismal track record over the past decade. We should demand more.
Reynolds' previous company British Telecom does not now appear to be trapped in such a mindset.
Aided by executives of Reynolds' abilities (he was previously head of BT Wholesale) BT has already successfully gone through the mill that Telecom now faces with the Government intent on smashing its network monopoly and paving the way for other competitors to invest in their own broadband offerings.
After repeated criticism that it was stifling the development of internet in Britain, BT agreed with the British government to undergo voluntary regulation leading to the creation of an operationally separate network, Openreach.
And it continued on to invest nearly $30 billion towards a next-generation network.
BT has supported the NZ government's plan to split Telecom by pointing out in a submission it would come closer to delivering truer telecommunications competition than in any of the other countries the British telco operates in.
But we won't know until later this month whether the Government has adopted to back Telecom's own counter-proposal for operationally separate retail and wholesale units alongside a structurally separate network company, or stayed true to its own plan to force Telecom to open its network to rivals.
If it's the latter, Reynolds will be well-placed to steer Telecom with confidence through the resultant minefields.
But why stop there?
When the NZ government privatised Telecom for $4.25 billion in 1990 it was sold to a US telco- dominated consortium that was brought together by David Richwhite and Alan Gibbs.
Under a Kiwi Share arrangement, the Government constrained the US telcos - Bell Atlantic and Ameritech - from maintaining outright ownership of Telecom under a clause which constrains any person who is not a New Zealand national from acquiring a relevant interest in more than 49.9 per cent of Telecom's voting shares without prior written Government approval.
The Kiwi Share, which still provides an artificial brake on Telecoms ownership, also restricts any one person from acquiring a relevant interest in 10 per cent or more of its voting shares without first getting prior written approval of the Government and Telecom board.
Under the Kiwi Share the Government also controlled Telecom's local call charges by guaranteeing free local calls and by freezing the domestic rental charge in real terms.
The two telcos reduced their combined holding to 49.6 per cent when they listed Telecom in 1991. The baby Bells contributed substantial IP and know-how during their ownership period.
But they also faced criticisms that they had plucked the low hanging fruit after they sold their shares, Ameritech in 1998, and Bell Atlantic in 2002, to mainly institutional investors.
But since they departed the scene Telecom has got itself into strife with the Government and its customers by misreading clear signals to move to international platforms.
Murray Horn, a capable former head of the NZ Treasury, has been appointed to Telecom's board as another step of the renewal process Wayne Boyd has implemented since assuming the company's chairmanship. But he does not bring with him any telco experience.
If Telecom's recent decision-making has suffered from the absence at board level of a major industry shareholder with the necessary smarts to ensure an appro- priate strategic direction, it's time to invite a shareholder on board.
