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Bill Bennett

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The telecommunications company formerly known as Telecom NZ. Still New Zealand’s largest telco and a major player in mobile and information technology services.

Telecom NZ redundancies loom

Inside Telecom's Auckland headquarters
Inside Telecom’s Auckland headquarters

Luigi Cappel reflects on his experience at Telecom NZ before looking at the company’s plans to shed about 20 percent of its workforce in Why is Telecom making 1500 staff redundant?. He asks how a company can get to the point where it has so many more people than it needs.

A good question. Part of the answer is that New Zealand’s telecommunications industry is going through another realignment. What worked three years ago doesn’t work today.

I have three fears:

  • First, when I hear of large redundancies in any listed company I suspect the move is as much about sending a signal to investors as it is about practicalities. Nothing says “we’re serious about reining in costs” as dropping 20 percent of staff. Sometimes this is done without properly considering what it does to a business’s ability to deliver. 
  • Second, I worry some of the talent locked inside will be lost to New Zealand forever. Europe and the USA are unlikely to be happy hunting grounds for job-hunting telecommunications workers at the moment, but Australia seems happy to cherry-pick New Zealand expertise. 
  • Third, often the most employable people are first out the door. I’ve already heard tales of Telecom NZ’s rivals snapping up talent. And that’s before the hit list is drawn up. Among them will be people Telecom NZ can ill-afford to lose.

Redundancies hurt morale

In my experience redundancy on this scale has a serious effect on the morale of remaining workers.  Fear is not the most effective motivator.

As Cappel points out in his post, when Telecom NZ cut staff before, Telecom had to take many people back as consultants. That’s almost certainly going to happen this time around. And no doubt some people will take their redundancy payout and do something entrepreneurial. They could even end up competing with their former employer.

Don’t expect NZ digital spectrum windfall

Britain’s 4G spectrum auction raised a third less than expected. UK telecommunications companies paid £2.3 billion to snap up the extra bandwidth needed to run next generation mobile data networks, that’s £1.2 billion less than the amount penciled-in by the government.

What does this mean for New Zealand’s spectrum sale which will probably take place later this year?

Previously there’s been speculation an open auction of the 700MHz band could raise $200 million. That figure  may look ambitious now.  

Vodafone and Telecom NZ are both experimenting with 4G services and are likely to bid for the new spectrum. 2Degrees could also take part and smaller players have bid for spectrum in earlier auctions.

The 700Mhz band is a sweet spot for mobile broadband – at those frequencies mobile signals do a better job of reaching through buildings in densely populated areas like central business districts.

As a rule of thumb, the lower the frequency, the higher the value of spectrum to carriers.

There’s also a Māori claim for spectrum which many expect could be used by iwi as a bargaining counter to wrest back some control of 2degrees – although that is not the only course of action open to Māori.

You could argue New Zealand’s carriers paid too much for 3G spectrum in 2001, it’ll be interesting to see how they act this time. While no-one wants to be locked out of 4G, the carriers will be just as wary of  overbidding.

Telecom, Vodafone promise Auckland-Sydney cable

Tasman Global Access Auckland-Sydney cable
How the Tasman Global Access fits into the bigger picture

Telecom NZ, Vodafone and Telstra plan to build a new submarine cable linking New Zealand to the east coast of Australia. When completed in mid to late 2014, it will be the second major broadband link between New Zealand and the rest of the world.

The companies say the project will cost less than US$60 million and will include three fibre pairs for a total capacity of 30TBps – that’s around 300 times the current data demand.

Telecom NZ is 50% owner of the rival Southern Cross Cable network, so there are question marks over whether the new cable will do much to increase competition. Nevertheless, bringing Vodafone and Telstra into the ownership ensures Telecom NZ doesn’t have monopoly control over New Zealand’s international data links.

Comment: It was clear from the moment Pacific Fibre closed down last August that someone would move to fill the submarine cable void. This joint venture from Telecom NZ, Vodafone and Telstra effectively sees off any other projects which may or may not have been planned. Building a new submarine cable is a smart move on their part: taking control of their own future and not waiting for someone else to control it.

Although some argue New Zealand needs a direct trans-Pacific link to the west coast of the USA, that falls into the category of a nice-to-have luxury and not essential. Investors weren’t convinced of Pacific Fibre’s $400 million business case.

Building a link to Australia was always the most cost-effective option. About 40% of NZ traffic goes across the Tasman and the relative rise of Asian economies compared to the USA means the route to our west will eventually be more important than the route to the east.

The lower latency promised by Pacific Fibre’s direct link between NZ and the USA is far less important than having a second network. And anyway, much of the data used by New Zealanders is cached in Sydney so arguably a second Tasman will mean as much of a speed boost for most users.

It’ll be interesting to see how the joint venture partners go about selling access on the new cable and how they’ll treat New Zealand’s smaller ISPs and data users. There’s unlikely to be any regulatory oversight – which makes some commentators uneasy. The joint venture structure, together with the structure of Southern Cross Cable Network should deliver some competition.

One last thought – and a question for informed readers – is where does this leave Chorus? You might expect the largest network company to want a role in one or more of the international networks. And with Telecom effectively sitting upstream and downstream, does this leave the company in a difficult strategic position?

Telecom NZ does not need Yahoo

Telecom NZ’s Chris Quin says the company could walk away from the outsourcing deal which sees Yahoo look after xtra.co.nz  mail accounts.

That’s a possible response to the latest security breach at Yahoo. The Internet company seems unable or unwilling to deal with the problem.

It is hard to see what value Yahoo gives Telecom NZ in 2013.

When Telecom NZ outsourced its mail service to Yahoo in 2007. It needed a way to manage the 800,000 or so Xtra mail accounts.

In those days ISP customers expected to get email accounts as part of their Internet services. Today’s ISPs sell data pipes with a little support and little else.

Many Xtra customers already have webmail accounts with services like Gmail and Outlook.com.

A YahooXtra account is almost unnecessary.

Almost unnecessary because there are two reasons Telecom can’t immediately dump them altogether.

First, history – what technology people might call ‘legacy issues’. Some of my email still comes via Xtra even though it is routed through Gmail. Figuring out which contacts have my old address and getting them to update my details isn’t straightforward.

Second, webmail addresses are second-class citizens online. Some services don’t allow customers to sign up with Gmail, Hotmail or Outlook.com addresses. Not every Telecom NZ customer wants to buy their own domain for a mail address, so keeping the Xtra domain as an option would be a good move.

Telecom NZ can walk customers through the process of setting up webmail accounts on alternative services – not a difficult job. Google and Microsoft would be only too happy to help sign up new business.

Ask not for whom the telco levy tolls….

Although it is called a levy, the $50 million government collects each year from telecommunications companies looks a lot like a tax.

That’s not necessarily a bad thing. The Telecommunications Development Levy pays for worthy causes like the government’s $300 million Rural Broadband Initiative, services for deaf people and upgrades to the 111 emergency call service.

Subsidising rural users

The TDL replaces an earlier scheme called the Telecommunications Services Obligation (TSO) which, in theory anyway, divided up the cost of providing land-line telephone services to unprofitable rural customers.

In effect it meant companies like Vodafone, CallPlus and Orcon had to shoulder some of the costs mainly carried by Telecom as a hangover from the days when a phone system was a public service, not a commercial business.

There was no end of arguing over the TSO. Vodafone pointed out those subsidised rural land line customers might be better off with mobile coverage than land-lines. There were other disputes.

New fund, new arguments

Now Chorus, which provides wholesale services to retail telcos, argues it shouldn’t pay the new levy. The company’s prices are largely regulated. Chorus can’t pass the additional cost on to its customers. The Commerce Commission, which manages the TDL doesn’t agree.

After considering charging content providers like Sky who deliver services over the telephone network, the Commerce Commission has backed off. The telcos aren’t happy about this, not is the Tuanz, the telecommunications user association.

The usual process is New Zealand is for too-ing and fro-ing between interested parties before the Telecommunications Commissioner makes a final decision.