Telco giants take big hit in 2001

The companies bringing the internet to our front doors had a tough year, reports PETER GRIFFIN.

As the internet industry nursed the fading bruises of 2000, it was the turn of the telecommunications sector - the companies bringing the internet to our front doors - to take a beating.

On a global scale, last year was possibly the worst year the telecommunications industry has faced.

Listed telcos alone announced layoffs worldwide totalling 470,000 - a figure likely to edge towards half a million this year.

Around 135,000 of those jobs were shed from equipment-makers Nortel, Lucent and Motorola.

The real damage was inflicted in Europe and the United States, where tier-one carriers, telecoms equipment manufacturers and mobile-network operators slashed jobs and froze investment as they plunged into the red.

It was a year when jittery investors hung up on the giant companies that look after the networks of fibre-optic and copper cables snaking around the world.

Share prices collapsed, profit warnings were issued, companies which had sunk billions into state-of-the-art networks teetered as chief financial officers slipped out the back door.

From the South Pacific, the sound of an industry crashing to its knees was barely audible, but we had plenty of local disasters to remind us how bad things were.

Telemedia, a home-grown software darling that rose and fell on the fortunes of its telco customers, crashed.

Other companies doing business with telcos overseas were also stung. Listed telecoms software company Commsoft lost $21.4 million in the year to June. Internet kiosk operator and pre-paid phone-card supplier E-Phone shifted its operations to Australia after a loss of $8.49 million.

Signs of the global shakeout were evident locally. Concert, a global joint venture between BT and AT&T intended to stretch all the way to New Zealand, was disbanded.

Telecom, the biggest listed company, mirrored international belt-tightening by reining in capital expenditure for the year by $200 million. By June, Telecom had cut staff numbers by 8.3 per cent compared to the previous year in a bid to keep the lid on expenses.

Wireless network operator Walker Wireless shed around 20 staff.

Telecom also wrote off $157 million of a 2.5G wireless network it had been building in Australia and continuing costs associated with its AAPT subsidiary in Australia.

Chief executive Theresa Gattung managed to keep a sympathetic market reasonably happy with a net profit in the year to June of $643 million, but that was down from $783 million in the previous year and was boosted by a $221 million dividend from Telecom's investment in the transpacific Southern Cross Cable.

Analysts continued to fret about Telecom's Australian operations and the company continued to soothe them, explaining that if shareholders wanted bigger dividends in future, Telecom would have to set its sights beyond New Zealand and bite the bullet in the short term.

Of lingering concern to analysts was Telecom's $A400 million ($484 million) investment in a joint venture with Hutchison to offer third-generation (3G) wireless services.

No longer was 3G the next big thing, as operators in Europe who had invested billions in securing 3G spectrum pushed out the launch dates of new networks.

On the mobile front, Telecom and Vodafone entered a battle for customers, keeping advertising executives rubbing their hands with glee.

Mobile penetration edged towards 65 per cent of the population as Telecom launched its high-speed 2.5G network, gaining more than 50,000 subscribers by the end of the year.

Some of the mobile data services the telcos claim will contribute an increasing proportion of revenue were launched. But the lack of enthusiasm for them showed it was early days for the mobile internet.

In September, Econet Wireless came out of nowhere with a plan to set up a GSM mobile network, squeezing into a small market dominated by two heavyweights.

A battle-hardened player in the African mobile market, Econet lobbied hard for changes to the Telecommunications Bill that would let its customers roam the networks of competitors and let it put equipment on competitors' cell sites.

Counter-lobbying by Vodafone kept politicians busy but largely failed to affect the shape of the legislation, which was slipped through Parliament days before Christmas.

The appointment of World Bank managing counsel Douglas Webb as telecommunications commissioner meant New Zealand finally had a solid regulatory environment. Controversial issues, including number portability, local loop unbundling and disputes between the carriers, were carefully put to one side pending Mr Webb's arrival.

In November, the deal that had been rumoured all year was finally sealed - TelstraSaturn bought Clear Communications for $435 million. Accompanying the sale was a shareholder reshuffle in which Telstra increased its stake in the company to 62 per cent, and troubled pay-TV operator Austar decreased its share to 38 per cent.

The Commerce Commission gave the merger its blessing, finding that the move would stimulate competition despite returning the market to a duopoly.

Analysts expected the merged operation's 300,000 customers and 11 per cent of the telecoms market to eat away at Telecom's share at a rate of just 1 to 2 per cent a year, based on Telecom's continued monopoly on the local loop.

By last month, the axe had fallen on TelstraSaturn's management and throughout the company in general with 150 job losses announced.

Jack Matthews, TelstraSaturn's golf-loving chief executive and the Herald's business leader of the year for 2000, was out the door. Rosemary Howard swooped in from Telstra's Australian wholesaling division to lead the New Zealand operations.

More redundancies at newly named TelstraClear will come this year as the company calculates how many employees inherited from Clear it can do without.

Last year was the year that the masses became aware of broadband. Finally, applications became available that made broadband attractive to the residential market, even if they came in the form of copyright-flouting, file-swapping services.

Telecom admitted broadband take-up was slow but refused to accept that that had a lot to do with how it was priced or the download caps that came with its Jetstream product.

Encouraging projects in Otago and the Far North to extend broadband to rural areas began, showing that with Government and community support, telcos can be lured to unprofitable areas.

And just before the end of the year, Telecom said line rental charges were increasing because customers use the internet too much and tie up local lines for hours.

Charges for off-peak toll calls, calls to mobile phones and maintaining domestic wiring would be bumped up from February 1, we were told, providing little Christmas cheer for customers but an extra $26 million a year for Telecom.

It was the last touch on a desperate year that telecoms executives, greyer and wiser, will be only too happy to forget.