Telecom stalwart returning to US

By RICHARD BRADDELL

WELLINGTON - After more than seven years as Telecom's chief financial officer, Jeff White will leave a company that has a totally different foundation from the one he joined in 1992.

Once largely a voice business, the bulk of Telecom earnings will soon come from data and mobile, and that will require capital that will make it ever harder to fund the generous dividends, not to mention the hundreds of millions in share buybacks and cancellations of the past.

And with heavy demands on capital as the company invests for future growth, Mr White's successor will have the task of selling Telecom as a value stock rather than an income generator.

While rapid growth in cellular business is a short-term drain on the bottom line, its capacity to improve earnings is constrained by heavy investment in new areas, including last year's $1.5 billion buy into Australia's AAPT, the Southern Cross cable and development of the internet and new cellular infrastructure.

Together, they will challenge Telecom to keep the short-term business going until the long-term gains click in.

Meantime, Mr White's successor will need to sell that transition to Telecom's shareholders.

"We need to convince them that the value in our current strategies provides as bright a future as we believe it does," he said.

Mr White's announcement that he is leaving at the end of the month came as little surprise. Beaten by Theresa Gattung to succeed Dr Roderick Deane as chief executive last year, it had long been expected that the architect of Telecom's financial success would choose to go.

But if his decision is tinged with bitterness, the lanky midwesterner is doing an excellent job of not showing it. He and Ms Gattung preserved what had been a good personal relationship by agreeing not to engage in denigration at the outset of last year's contest.

AAPT was never an option. "If I was going to make a change then I definitely wanted to go back to the States," said Mr White.

He wants a chief executive's job, hopefully with one of the new telcos that are proliferating in America's hot deregulated telecomms market.

Mr White came to New Zealand on secondment from 25 per cent shareholder Ameritech in 1992. Dr Deane took office as chief executive and the two hit it off.

The secondment was extended, and in 1996 Mr White severed all ties with Ameritech.

With Telecom being New Zealand's largest company, and the frequent contacts with Wall St, he expects an easy transition to the US. He has already turned down two offers to become chief executive.

Among his achievements, he lists his first assignment from Dr Deane to arrest the loss of tolls market share to Clear in those early days.

Telecom was able to regain the high ground by matching Clear on price, he said.

Another landmark was the Performance 2000 programme instituted in 1996. Costs had begun to blow out and something needed to be done.

A taskforce drawn from around the country scrutinised operational issues and costs.

"It was not only successful in getting cost growth well under our revenue growth, but also in improving customer service," Mr White said.

The stand-out achievement was last year's takeover of AAPT.

"The acquisition was highly risky and the odds were stacked against us that we would be successful in ending up with that business," Mr White said.

Negotiating Australia's complex takeover laws was going to be a challenge. The trick was not to be caught with the entire company, even if it was inevitable, given the shareholding structure, that Telecom would end up with more than 70 per cent.

But if the market was caught by surprise by Telecom's quickly conceived raid, Mr White believes AAPT was a bargain at the offer price, a view seemingly vindicated given that the freely held shares are now trading 35 per cent higher than the offer price.

But if investors are now heartened by AAPT's planned investment in cellular capacity, those investments still have to be funded.

Telecom's decision to introduce a dividend reinvestment plan is but one signal that its need for capital now outstrips cashflow.

And that is why floating off parts of its internet and cellular businesses in local or transtasman initial public offerings, or part of AAPT itself, is under serious consideration.