Triple-play on Telecom's speed dial

Simon Moutter

Telecom is poised for big cost savings and possible job cuts by replacing its phone system with a next-generation "triple-play" network.

The company acknowledged yesterday the new network would take some of the cost out of doing business and that staffing would be affected in a process that would "take some years".

Chief operating officer Simon Moutter said: "This new network will transform the nature of the business. You can envisage on the end of this a profoundly different business model."

Moutter guessed at possible cost savings of $100 million a year, although spokesman John Goulter later said Telecom had no definitive estimates. Goulter also said there were no immediate plans to cut staff.

Analysts said the new network, a "triple-play" of voice, data and video services, will introduce several consolidation benefits. It will cull several points of product entry for customers to one, reducing costs in everything from marketing, billing and rental of physical floor space.

By one estimate, Telecom's operating costs would be shaved by 60 per cent to 80 per cent.

That would be good news for the company, which saw its annual operating expenses rise to $3.3 billion for the year to June 30, from $3 billion a year earlier.

Sydney-based telecommunications analyst Paul Budde said the network would also make a significant number of jobs redundant.

"There's no doubt about that. The good news is that New Zealand has already moved further than lots of other countries, so the pain won't be [as bad]," he said.

Budde estimates the network would eventually allow Telecom to cut between 10 to 15 per cent of its workforce, "not overnight, but gradually".

The new infrastructure will replace the old digital phone network - installed in the 1980s - with an internet protocol network. In essence, customers will be making all calls over the internet, albeit a privately secured one owned by Telecom.

The company has begun a three-month voice call trial with 120 customers and expects to start migrating customers on to the network in early 2007.

The complete transition of 2.2 million customer lines is scheduled to be complete by 2012.

Moutter said while existing voice-over-internet-protocol services - such as the wildly successful Skype - offered extremely low-cost calls, that would not necessarily be the case with Telecom's offerings.

He said the quality of internet calls was still questionable while Telecom's offerings - which he pointedly stressed were "not internet voice" - would continue to be of a high pedigree.

There would be a range of offerings, with high-quality calling costing more and lower-quality costing less.

Aside from voice and traditional broadband internet services, the $1.4 billion Alcatel-supplied network will also introduce video capabilities.

In the near term, analysts expect this to translate into video calling.

But down the road it could also mean television-like services.