Telecom's united front on separation

Theresa Gattung and Wayne Boyd talk about the plan to split Telecom into two separate divisions. Picture / Martin Sykes

Telecom announced last week it would split its fixed-line business into separate wholesale and retail operations. This is a monumental change of direction for the country's largest listed company, grappling to redefine itself under the new regulatory regime imposed on it by the Government two months ago.

With the unbundling of the local loop on the horizon, Telecom's pre-emptive decision to separate its wholesale business has been greeted with enthusiasm by some commentators and cynicism by others. The supporters say the voluntary split mirrors British Telecom's positive reaction to unbundling and will be good for the company and consumers. Cynics say the plan lacks detail.

Herald to Gattung: How is separation going to work? Can you give us more specifics?

Gattung: Well, actually we can't. What we've said is that these are the principles that we [expect to be] held to - transparency, equivalence of service, and independent oversight - and we've had a look at different models [around the world].

What we want to do now is work with stakeholders to say, how do we operationalise? What's the best model against these principles for New Zealand?

What we're saying is this is the direction we're on, we're disclosing it to the whole market so we can do consultation and then in our full-year result announcement on August 4 we'll be able to put more flesh on the bones.

We're going to separate retail and wholesale. Retail has a consumer piece which is run by Kevin Kenrick, a business piece run by Simon Moutter. Mark Ratcliffe runs network and wholesale.

Will each of these divisions have a separate executive team with a Chinese wall between them?

Gattung: There definitely will be a Chinese wall between wholesale and retail. That's already started.

We've always had a Chinese wall, but wholesale used to report to the chief operating officer whom retail reported to as well. It was a product-based structure before, and so mobile, fixed, and wholesale all reported to Simon Moutter as chief operating officer. In this model, from July 1 wholesale and network report to the head of technology and enterprises, and retail reports to me separately.

So, we've already created more of a separation than we used to have.

How is this reorganisation different from the one you announced in April?

Gattung: We said we were up for moving in this direction, but we didn't make anything like this degree of commitment. We're up for making quite serious binding undertakings. The wholesale charter was [about saying] we want to go in this direction. This is taking it a whole institutionalised step further. This is basically saying we will agree and commit to a series of binding undertakings around transparency, around equivalence. We will work with the industry to set up this independent group who will monitor our undertakings.

So this is a structure designed to take advantage of clause 59 of the Government's unbundling bill? (Clause 59 of the Telecommunications Amendment Bill leaves open the possibility of Telecom circumventing unbundling if it can reach an agreement with the Commerce Commission.)

Gattung: [The timing of the separation announcement was] pure coincidence. We've been working on this for the last six weeks. Now I don't expect you to believe that because you always believe conspiracy theories, but it is.

This isn't about any sort of full-on structural separation where a network company will be spun off?

Gattung: No. We see wholesale as actually a growth area for the future. This is operational separation.

Is mobile included in this separation?

Gattung: No it's not. This is focused more on the broadband world, the fixed line services and the things which are already within the regulatory paradigm.

To Boyd: Is the chief executive going to be staying in the job, at least for the immediate future?

Boyd: The board are fully supportive of Theresa and the management team in implementing this strategy. This is a significant strategy. It requires leadership and its transformational nature is such that the board has to provide management and Theresa with that support and we're doing that.

To Gattung: Do you feel on notice?

Gattung: Every CEO always feels like that. I'm totally committed to leading the company through this, it's a big programme that we're undertaking and we've got a great deal of alignment around it and it's going to take huge effort to pull it off.

Was there an international search conducted to see whether there were other executives who might fit the CEO role?

Boyd: I've made the comment that we fully support Theresa and the team in terms of the project that we've got under way. The international search that we've got under way at the moment is for our board replacements or just to renew the board and there's been no international search for an executive.

How is the search for board members going?

Boyd: I've just received a long list for the new positions and I have to say there are some really good names on the list. I intend to work through that with our head of HR to get it into a form where I can make it available to the rest of the board so that we get a shortlist out quite quickly.

Have you reached any views on the expansion of the board?

Boyd: We've got an open mind. It's important that we get the right mix. Also, as you know, the board will need renewal and so I've seen this as a three or five-year project. I've really got to get the initial appointments made and also have in mind the sort of appointments we might need going forward.

Have all the board members expressed their wish to remain on the board?

Boyd: Absolutely. They have the skills and they will be complemented by the new board members to actually take this company forward in this new era.

To Gattung: As a result of your controversial March speech to analysts talking about confusion as a marketing tactic, do you feel you've lost the faith of customers?

Gattung: I was very straight-up. I was actually being an advocate for customers. I was pointing out that telcos all around the world have complex business models and we're committed to changing that and that is what this next generation Telecom is about. We're getting on with it and that's my focus.

A lot of people have pointed out that you misread the Government's intentions over unbundling.

Gattung: Look, were moving on. I've made it clear in every public speech I've given in the last few weeks that we're getting on with it and we've done a number of things now - today's announcement being the most significant but also the working parties as well - that indicate that we are accepting the regime. We want to work with the new policy settings and do our best for our customers and ultimately our shareholders.