Telecom takes the blame as it counts cost of XT failure

CEO Paul Reynolds (left) and CFO Russ Houlden announcing Telecom's 2009/10 second-quarter results at SkyCity yesterday. Photo / Natalie Slade

Telecom has started the clean-up after two major mobile network outages in as many months.

Executives Alan Gourdie and Chris Quin, who head the retail and corporate business units, will be in the South Island next week meeting customers who were worst affected.

"Humility means fronting up and saying, 'Look, we're sorry.' This is not what we envisaged, not what we promised," said Gen-i's Quin.

Asked if any Gen-i customers had walked away from XT, Quin said he was not aware of anyone moving as a result of the XT problems.

"There are some who are particularly unhappy about it and we may lose some. We'll fight real hard ... and we'll do everything we can to earn their preference back."

He said three or four larger customers were continuing with XT despite the outages. Fonterra, which left Vodafone for Telecom last September, now had 35 per cent of its staff on XT.

Quin said Fonterra has chosen to pause the roll-out of XT connections until the results of an independent review by an international consultant expected to be named next week.

January's fault was caused by a hardware failure that took down 5 per cent of the XT cell sites in the South Island. The surge in traffic caused by phones trying to reconnect then temporarily overloaded the radio network controller device in Christchurch.

Chief executive Paul Reynolds was not apportioning blame to technology supplier Alcatel Lucent, who were responsible for building and managing the mobile network.

"This is a complex operational fault and as far as Telecom are concerned this is a matter between us and our customers and we take full responsibility for that."

The company has announced a $5 million compensation package for customers affected by the outage.

Craigs Investment Partners analyst Geoff Zame said the network failure was a body blow for Telecom and called into question its vendor relationship with Alcatel Lucent, a company which had built its reputation in the fixed-line space. But he said the network failures were a "short-term hiccup" which might only slow growth for three to six months.

Reynolds said two further radio network controller devices would be installed in Auckland and Christchurch next month as planned along with additional equipment and new cell sites.

He said Telecom's share of the mobile market revenue was stable at 39 per cent.

Connections to the old CDMA network and new XT network were up 60,000 in the quarter, mostly prepaid.

Telecom had a pre-Christmas special offering a free mobile broadband data connection to customers buying $30 of data and all-you-can-eat texting for $12.

Gourdie said the prepaid data option was a low-cost way of getting people to try mobile data.

"Once they've tried we can form a longer-term relationship with them."

Forsyth Barr analyst Guy Hallwright said Telecom was not effectively attacking the postpaid market.

"That's clearly the weak spot in this result so far as market will look at it."

Reynolds said pre-Christmas campaigns drove average revenue per user on XT up 19 per cent on the comparable quarter in the previous year.

Telecom shares closed down 1c yesterday at $2.30.

New entrant 2degrees said yesterday it had 206,000 customers actively using its network - active customers were defined as those who had made a phone call in the previous 30 days.

Chief executive Eric Hertz confirmed that 80 per cent of the 50,000 customers porting their existing numbers to 2degrees had come from Vodafone.