Telecom NZ outlines survival strategies

Stuart Corner
Tuesday, 21 March 2006 05:12

IT Industry - Strategy

In a briefing to analysts in Sydney, Telecom New Zealand has painted a grim picture of its prospects, absent major strategy changes.

Press were not invited to the event, according to the Financial Review, but the company says the slides of all briefings will be made available on its website www.telecom.co.nz in due course.


However the company has given no indication that it will follow Telstra's example of also making all transcripts of presentations and Q&As available - which are much more informative than PowerPoint slide sets.

In his overview presentation (or rather on the slides thereof) CFO Marko Bogoievski, said that "Absent major interventions, our current trajectory implies a reduction in ROIC over the next five years. The main driver of ROIC decline will be intensified competition through fixed-to-mobile, regulatory intervention, and new access technologies.

"We have sustainable competitive advantage in core communications - but not in other high margin areas where we expect future growth to occur. Our current major efficiency initiatives will not be enough to mitigate high margin revenue declines. We are moving towards a significantly lower cost business model to sustain and grow returns in the long term."

He then went on to present three scenarios of progressively greater EBITDA decline to 2010, absent significant intervention, and detailed the company's planned response saying: "Our strategic response is built around three themes: protect and enhance the core communications business [by containing] revenue decline while also delivering operational and capital efficiency ... build a new, significantly lower cost business model centred around simpler, more powerful customer value propositions..[and] pursue targeted options for future revenue growth and sustainable margin."

He said the total value attribute to these initiatives in the fiveyeaer to 2010 was expected to be divided between the three 68, 29 and three percent respectively.


Like Telstra, Telecom NZ is planning a major rationalisation of its back office systems and product offers. Bogoievski promised "A new offer model that is simpler - with significantly fewer, and more transparent offers; significantly lower cost marketing, sales, and service model that supports the new offer model; clear separation of new IS systems from old - no backward integration."

He proffered "a guess at what the future business profile will look like" suggesting it would have 500 offers instead of 50,000, two simple market segments (mass, managed,) 20 products instead of 200), 60 percent of the platforms (440 instead of 740); 90 percent of the customers and "important differences in organisational, network, supplier, partnering and sharing models."