Telecom’s woes

April 16th, 2010 at 5:39 am by David Farrar

The Herald reports:

plans to slash 200 management jobs by mid-year, and more lay-offs are likely as the company seeks to slash its costs.

Never good when a company cuts jobs, but often necessary. Very tough on those in the affected areas.

The job losses within its 8000-person workforce are part of a programme announced last year that aims to slice more than $500 million from the business’s costs by 2013.

Mr Reynolds said $113 million had been cut last year, and a further $244 million was expected to be cut this financial year.

200 out of 8,000 is 1 in 40 jobs gone, but as they are all management jobs, then the ratio will be considerably lower.

In a related story:

Telecom is seeking relief from the Government on its regulatory obligations in the face of pressure on earnings.

I’m somewhat supportive of this, but the key is timing. As a fibre network is built, access to the copper legacy network will become less important, and access conditions can be reduced. But one needs that fibre network to be reasonably progressed, before one can start to strip back some of the copper network regulation.

UPDATE:

Tom Pullar-Strecker writes in the Dom Post:

Telecom has caved in to Government pressure and will consider splitting into two separate companies.

This would make it more likely that the Government’s $1.5 billion plan to roll out ultrafast broadband to three-quarters of homes will get off the ground.

I’m not sure it makes the fibre to the home plan more likely. I think it makes Telecom’s chances of winning the bids more likely.

After playing chicken with the Government over the ultrafast broadband contract, chief executive Paul Reynolds blinked first and said the company was open to working with the Government on a “full range of approaches”.

I’m not sure I quite read that as saying they will consider splitting. If Telecom is open to spinning Chorus off (which would be a good thing), they should make it clear, as it will improve their chances (in my opinion) with the fibre to the home initiative.

Tags:

38 Responses to “Telecom’s woes”

  1. Barnsley Bill (983 comments) says:

    I am surprised that you are not expressing wild joy David. After all your support of successive socialist govts clunking fist approach to the private property rights of Telecom shareholders is peppered throughout this blog. Hardly any wonder they are needing to carve jobs and consider capitulating to populist eat the rich policy from first Labour and now National.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. Viking2 (11,488 comments) says:

    I wonder when the Govt. is going to compensate Telecom shareholders for taking away their property rights and destroying the value of the Telecom business?
    Telecom shareholders should fold their tent and sell their equipment to the scrap man. Most likely worth more than as an operation. With its access rights,(if they haven’t been taken as well), out up for tender and the price of copper the shareholders could take their money and spend it on something a lot more profitable.
    But then the socialists would winge and cry and wail all the way to the beehive and beyond but currently that’s what NZ deserves.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. Luc Hansen (4,573 comments) says:

    I wonder when the govt (in the generic sense) is going to compensate us Kiwis for flogging off a state-sanctioned monopoly to rapacious US companies (and the odd Kiwi crook) that resulted in over 8 billion dollars (non-inflation adjusted) leaving this country for a more deserving-destination the poor old US.

    The disaster for today’s Telecom can be squarely at the Deane/Gattung door, as they simply continued the rape and pillage with no regard whatsoever for the future good of its captive clientele or the country it operates in.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Barnsley Bill (983 comments) says:

    And there is the difference between people who believe all property is theft and the rest of us. What a knob.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Luc Hansen (4,573 comments) says:

    Do a fair bit of knob gazing, do you Billy Boy?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. starboard (2,537 comments) says:

    …and how about Mr Reynolds taking a 10% paycut…5 million plus per year is a bit rank whilst Telecom are up shit creek without a paddle..

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. Falafulu Fisi (2,179 comments) says:

    Luc said…
    I wonder when the govt (in the generic sense) is going to compensate us Kiwis for flogging off a state-sanctioned monopoly to rapacious US companies (and the odd Kiwi crook) that resulted in over 8 billion dollars (non-inflation adjusted) leaving this country for a more deserving-destination the poor old US.

    Luc, you need to take time off from making stupid comments on Kiwiblog just to educate yourself, perhaps by reading more. Read about property rights and try to understand it inside out. It is not complex as trying to understand topics in climate science. It is obvious that your reasoning mechanism is seriously impaired. Your comment above just showed exactly that.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. berend (1,711 comments) says:

    Barnsley Bill, DPF has a unique form of capitalism: it’s capitalism for things he isn’t interested in, and socialism for the things he is. Otherwise known as blue liberalism.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. ben (2,380 comments) says:

    David I think there is, erm, a certain tension in cheering for ever tougher regulation and expropriation of Telecom and its owners, many of them NZers by the way, then saying its never good when the layoffs come.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. side show bob (3,660 comments) says:

    While I feel for those losing their jobs Telecom deserves every bit of shit that heads their way. Telecom was fucking clever when they had the population by the balls and sucked billions out of the country. Little was spent on updating infrastructure and any competition was strangled with great glee. The worm has now turned and now these parasites are crying crocodile tears. Tough !!!!!!!!!!!!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. barry (1,317 comments) says:

    Telecom goes where so many other NZ companies have gone (air NZ, CHH, Fletchers, GDC, etc)……………
    Lead by people of very ordinary mental capacity, one should be unsurprised that their decision to ignore reality has come to the situation where they are now – and that can best described as pretty much fucked.

    When deregulated they first setup three different companies – Telecom North, central and south – and they competed with each other!!- for the same companies !!. Then they have built THREE different mobile systems, they ignored the breakup of telephone companies around the world (and believed that this wouldnt happen here), they went foreign for call centres, they admitted that they used confusion as a marketing too!, etc, etc.
    Really, what else could one expect.
    My son lives with 3 other guys in a flat and they dont have a land line – its all mobile and they all have vodaphone. Telecom is not part of their thought pattern. Their internet is via satellite (with 4 sharing the cost, its cheap) . Telecom thought that everyone had to use them and they made doing business with them very difficult.

    Whats happening has had to come to pass. Arrogant bastards

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. s.russell (1,642 comments) says:

    “I wonder when the Govt. is going to compensate Telecom shareholders for taking away their property rights and destroying the value of the Telecom business?”

    The value of Telecom’s business was in its being able to use its monopoly position to rip off customers.

    So, sorry, I have ZERO sympathy for whingeing Telecom shareholders.

    Reynolds has admitted that Telecom’s current woes stem in large part from increased competition. Hooray! Long may Telecom be under pressure! It makes them cut bloat so it can compete better – and consumers are the winners.

    Viewed in this light, Telecom’s woes are something to celebrate.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. trabaq (1 comment) says:

    Ah yes the old property rights excuse for monopoly behaviour. That didn’t work for Rockefeller and Standard Oil or Ma Bell so why should NZ be different? Maybe those so keen to promote Adam Smith’s “Invisible hand” would do well to remember what he said about cartel behaviour “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” I doubt Adam Smith would be grieving for Telecom’s shareholders.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. Jack5 (5,137 comments) says:

    S. Russell posted at 11.01:

    …The value of Telecom’s business was in its being able to use its monopoly position …

    So it’s okay to sell a business as a monopoly, as NZ did Telecom, then to bust that monopoly without compensation? I would say it was fraud.

    Why do you think the politicians of the day were surprised and delighted by the price the Americans paid for the network?
    It was because it was a monopoly.

    In hindsight, the mistake of the Government was to sell off the copper network rather than retain it like it did the national electricity grid. It could then have sold off the other bits of the old Post Office telecommunications as competitive enterprises.

    To whack two or three billion off Telecom investors, tens of thousands of them small NZ investors, without compensation was Latin American confiscation style politics by El Primo Cunliffe.

    Watch what this does when NZ puts the hat around for more local and international investment in telecommunications.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. Jack5 (5,137 comments) says:

    Barry posted at 10.49:

    …My son lives with 3 other guys in a flat… Their internet is via satellite …

    With the poor latency you get with a satellite, you son and his friend obviously aren’t playing computer games internationally. Satellite transmission is poor compared with fibre-optic cable.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. tvb (4,430 comments) says:

    Slowly this outrageous monopoly is being picked apart, too slowly.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. salamanda (3 comments) says:

    Just some useless information that might be of interest.

    Telecom’s ‘minimum’ annual wage/salary cost for every staff member (2,000 of them) earning over $100,000 per year. The salary brackets went up in increments: $100-$130: $130-$160 all the way to CEO.

    We calculated using the bottom end of each bracket and the total: $443,000,000 pa. Nearly the same as their posted profit this year.

    Seriously, that place would run just as well, if not better actually, if you removed 1/3 of all these people in the above positions, overnight… nobody knows what the hell they all do anyway. Perhaps then we’ll finally see the last remaining remnants of the old ‘Post Office’ bureaucracy die and they can learn to operate efficiently, compete effectively and treat their customers with respect, rather than the arrogant disdain they find so hard to shake from their collective, corporate psyche.

    Until then they’ll still just sit up there and keep wondering why everybody hates them.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. ben (2,380 comments) says:

    Folks, it seems like Telecom is a touchstone that makes otherwise smart people say silly things.

    The government received top dollar for Telecom when it sold it. The reason is that it captured some of the value that would be created by its new owners. A good deal of the billions you say is flowing offshore was paid for in advance at sale to taxpayers.

    Second, without any ownership stake at all, the government still captures one third of Telecom’s surplus through corporate tax.

    Third, anyone who says Telecom didn’t invest doesn’t know the first thing of what they are talking about. Of course Telecom invested. It built three mobile networks, built and re-built the transport infrastructure, rolled out DSL, and built Southern Cross. All of that takes investment.

    Fourth, to anyone who thinks everything would have been better if government had retained ownership. Would it? Everybody absolutely thrilled with their electricity prices and reliability now that government owns nearly everything in that industry?

    Finally, Jack5 is exactly right. NZ will struggle to attract investment when governments can simply take. That is exactly what has happened. Now the investment is drying up and NZ will, eventually, start falling behind. Which will cause…yes, the government to come in to try and catch up. It is slow nationalisation. Destroy the incumbent providers. And then step in when they decide there is no business case for operating in New Zealand any more.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. menace (402 comments) says:

    Telecom’s had it’s day. Thus far I’ve not seen nearly as much hard ship for them as they deserve. Monopolizing greedy scum is all they are, Vodafone for that matter also.

    Myself and all the other people I know that have changed over to 2degrees are all experiencing bills literally half the price of what we were with either of the old sloth’s. And its gonna get even cheaper.

    The fact that i could change companies over night and literally cut by bill in have is pure evidence that they were blatantly ripping me off just because they could.

    If I had similar morals to them id say id collect the dole.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. ben (2,380 comments) says:

    Ah, socialism…

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. Barnsley Bill (983 comments) says:

    Well done menace, you have joined 2 degrees. A company with a business plan that relies on the govt legislating the price that Voda can charge for its services. 2 degrees loses money and always will. The business plan is so flawed I have to wonder how they convinced the shareholders to stump up the cash to fund it.
    If the govt had sold telecom and then left it alone we would have seen competitors come in and build their own networks. But the stupidity of successive socialist governments squeezing the incumbent has made the cost benefit of building a competing network unworkable. By continually squeezing TCNZ the foreign owned competitors have had cheap access to Telecoms network with limited investment required.
    A byproduct of that is the rape of TCNZ shareholders (both domestic and foreign) in much the same way that the treasonous cunt Cullen did with AIA. It has led us to a position today where we have one national phone network and an owner who is reluctant to invest because they are immediately forced to allow competitors cheap access to it.
    An analogy I like is that the govt decide that they must build a road through half your house. They are not going to compensate you for the use/loss of your kitchen and to really snap it off in you, they are going to force you to pay for the road as well.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. Viking2 (11,488 comments) says:

    Well of course Vector could make a bid for Telecom shares and Stiasny could screw the crap out of everyone. Oh but hang on Vector is a socilaist institution owned by the people.
    Now that would really suit all you cringing winging socialists wouldn’t it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. barry (1,317 comments) says:

    Dear Barnsley Bill

    I take it from your comments that you align yourself with Acts policies and beliefs……….

    I think I recall that most of those ACT lot were in power (wearing lambs clothing obviously – red coloured ones) when they deregulated the economy and forgot to put some safeguards in place………..

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. menace (402 comments) says:

    Anyway, my self and many friends are now sharing rates similar to what i have experienced on several other continents and that’s what counts for us, we are no longer being ripped off and are now paying rates comparable to those in other continents.

    I fail to see how my stance on this makes me a socialist, I my self don’t profess to a genius, and perhaps I’m wrong but I think my perspective on this issue is one of capitalism?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. ben (2,380 comments) says:

    Menace, you are utterly incoherent. You refer to Telecom as “Monopolizing greedy scum” then call its main mobile competitor the same thing and then tell us about how much you’re saving by going to a third competitor. Some monopoly.

    Actually prices do vary in competitive markets. There is no unified price for petrol or taxis or cornflakes. Last I checked Kelloggs charged a lot more for cornflakes than Pams. Does that make Kelloggs monopolizing greedy scum?

    If not, what is your test for greed? Gut instinct about telecommunications costs in New Zealand?

    You sure sound like a socialist. According to you, companies that charge higher prices should be punished, and you know the market so well as to know what is right? Please.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. menace (402 comments) says:

    Ben, you speak as if I’ve had this cheaper option for many years? Why not, because telecom monopolized on there position for as long and as hard as they can. Ill be very happy to see a freer market destroy them to be honest, its just business aye.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. tom hunter (4,894 comments) says:

    Third, anyone who says Telecom didn’t invest doesn’t know the first thing of what they are talking about..

    Now that’s an interesting point because when I was at Telecom in 2008, the business cases for every little project required quite a bit of hoop jumping to ensure they were cap-ex and not the dreaded op-ex that would cut into profits. The focus on creating and building wealth sounded good – but the result was that cap-ex was three times that of any similar telco in the world – so we were told.

    Their senior management made it very clear to the IT groups that in mid-2009 the “good times” re investment were going to come to a halt. The reason supposedly was that institutional investors had got very annoyed with Telecom’s capital expenditure ratios, claiming it had not generated the resulting increases in market share, revenue, profits, or share price. The Board of Directors was bluntly told that cap-ex had to be cut drastically or these investors would walk. The BOD took that seriously and demanded that senior management make those cuts. At which point management pleaded that while they would do so, they had to first put in place something new and exciting and profitable – a game changer.

    The result was an extra year of latitude, ½ a billion dollars or so, and the the XT network.

    Sad. Very sad.

    I wonder how many of these 200 managers were doing that sort of ‘build’ work as opposed to operating or line management?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. CJD (333 comments) says:

    Telecom is a victim of its own avarice. While we are very sorry for those for those who lose their jobs, I can’t imagine the company itself will get much sympathy from the over-charged and under-serviced public. There can be no real competition until there is a separate lines (copper/fibre) logistics company that can provide servce to all voice/internet service providers on a cost-party basis.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. CJD (333 comments) says:

    While I am a dedicated supporter of the free market principle, Telecom has given much in the way of ammunition to the Lefty “state-owned at any cost” brigade. The size of the population meand that the market is not resilient enough to have a privatisation the size of Telecom foisted upon it. We have supped from the socialist teat fro so long that a true free market environment needs to be phased in and developed in order to work correctly. And to those that believe that priviatisation naturally means all control is divested offshore, it is high time we as a nation began investing in our own listed companies instead of causing artificially elevated house prices because of an obsession with property.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. Viking2 (11,488 comments) says:

    As I said at the beginning Telecom should fold their tent tonight, Switch it all off, fire all but a few and let the rest of NZ get along without all their infrastructure and sell all the parts to the scrappie. Sell their property holdings and rent out their access. then you whingers would have something to complain about. Thats what most other private companies would do. Realise their assets and retire to sit in the sun in Queensland. Go buy a batch and think stuff you whinging Kiwi’s.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. starboard (2,537 comments) says:

    ben (807) Says:

    April 16th, 2010 at 1:39 pm

    There is no unified price for petrol …

    …I beg to differ on that one !

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. Anthony (796 comments) says:

    BB your analogy just shows out of touch you are with regulatory economics. Do you advocate privatising the roading network and then expect other companies to come and build competing roads??? Some things are natural monopolies or near natural monopolies and either have to be regulated or state owned. That’s a simple fact of life nearly everywhere around the world!

    Vodafone NZ have paid over $1 billion in special dividends back to their parent company – NZ has been extremely profitable for them. To compete on a level playing field, 2degrees needs to be able to terminate their customer’s calls to Vodafone customers at a cost based price. That too is common in many other countries.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. Luc Hansen (4,573 comments) says:

    Ben, you are as much of an idiot as the Knob Gazer.

    Telecom was sold when it was at the bottom of its game, suffering a hangover from its days of helping to keep the numbers of unemployed down. The sale of Telecom actually increased our overseas debt, because the company’s purchase price was raise dfrom overseas lenders. It was lose, lose for those who had the property rights, the New Zealand taxpayers who actually had put in the capital to set up the company in the first place. Our property rights were extinguished by ideology.

    And Telecom doesn’t pay tax on its surplus, but on its profit, which is much reduced from its surplus through various mechanisms, of which the nefarious depreciation is but one. Personally, I think businesses should be taxed on sales, not profit, and this would result in big savings for the small to medium businesses but huge costs for the big boys and that is why it won’t happen.

    To address one more point, private ownership is not the issue, its the regulatory environment, idiot. It doesn’t matter who owns a business, its the direction it is given that determines the outcome. That is why, as I often point out, NZ Post was once lauded as the business of the year. That doesn’t mean the govt should own everything – just that ownership is a red herring.

    The Deane/Gattung axis was the axis of evil for the NZ telecommunications industry. End of story.

    And Anthony, look up the meaning of “duopoly.”

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  34. Anthony (796 comments) says:

    I’m quite aware that Vodafone was part of a duopoly Luc but it has actually has a monopoly on terminating calls to its own customers – tell me how you are going to ring a Vodafone customer without going through Vodafone??

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  35. Pole (6 comments) says:

    The fact Telecom still has the doors open is a credit to the place and people. No other company in the history of NZ business has been forced into this amount of regulation in such a short time, it costs millions of dolars and amazing amounts of hours jumping through government hoops.
    Why, what is the aim of all this,…better cheaper service for consumers. Well it isnt happening, at least not due to any government action.
    Service levels and offerings have to be identicle across al of the relvant products, this is voice, data, broadband etc. Telecom cannot spend money on inovation of produsts as thy will be forced to offer identicle product with identicle service levels to their competitors via the Wholesale arm. So Telecom develops a product, invests in the requird infrastructure, and is forced to hand it over, the IP, everything fines of up to 10 million a day are the penalties.
    Service agents / call centre reps cannot go the extra mile for the customer now, because to do so risks breaking one of the undertakings of operational seperation.
    We all lose. Soon enough the cheer leaders for the heroes of telecommunications like Voda(forecast 11 billion pound profit for 2009) will realise this, the government seems to be taing a goose with the golden egg aproach to this. You seriously think a power company can do comunications better than Telecom?, last time I checked Aucklands power supply wasnt exactly secure, what makes you think they can roll out and run a national communications network?
    Be careful what you wish for. If Telecom breaks, and its fkn closer than you think……we are al fked.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  36. Anthony (796 comments) says:

    Pole – you are not quite right. Telecom isn’t required to offer any new product at a cost price to its competitors – and in fact most of its products are available only at a slight discount to the retail price so selling the products to its competitors still makes it money. You need to check the Telco Act more carefully before making ridiculous claims.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  37. Pole (6 comments) says:

    Anthony, nothing ridiculous…..bit harsh there. Do you understand the definition of ‘relevant services’ as per Operational separation, ..any enhancement to an existing relevant service, or a brand new product has to be made available to Telecom’s competitors. So Telecom invests in an enhancement project, the research, developement,process,system upgrades all at cost, then to have to offer all of that to all its competitors. If you think some skinny regulated margin covers that, not to mention the cost of setting up three operationally separated business units to deliver service to its rivals then you are dreaming.
    Ultimately, regulation is hindering the very thing it set out to achieve. i worked at Telecom in the ninties as a tech, those were the darkest times, I think a lot of sentiment still prevails, I can undersatnd that. But I think they are a much changed organisation with a genuine desire to be absolutly customer focused, but this evel of regulation, we wont see it.

    Did I mention voda group made circa 10 billion pounds last year?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  38. Anthony (796 comments) says:

    Pole, you don’t understand quite how the regulations work. Telecom doesn’t get a skinny regulated margin at all – it’s retail competitors only get a skinny margin off retail on those products you are talking about. Do your homework before making silly claims!

    What’s your point about Voda? NZ is hugely profitable for it considering our tiny population.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote