Telecom Enters Critical Phase

Telecom Enters Critical Phase as it Announces Flat Growth

Telecom New Zealand is entering a critical phase of its history, with the Telecoms Commissioner having announced one of his three important decisions, the regional broadband initiatives gaining momentum and the revenue focus shifting to markets with more competition, said IDC Research Director Michael Cranna . –

“Telecom’s announcement today of its first quarter performance was below the expectations of many analysts, but in line with prevailing market conditions”, Cranna said. “Other telcos such as Telstra and BT are reporting similar, perhaps slightly better results, but they are in the ballpark” he added.

Moreover, growth is increasingly focused in smaller, newer markets such as data and mobile services, where Telecom is facing a fundamentally different competitive landscape, illustrated by its loss in the Southland regional broadband initiative to Vodafone and Walker Wireless.

While this is a relatively minor setback for Telecom, it was a huge win for Vodafone and Walker Wireless, as it gives their bids in other regions enhanced credibility. “If these companies are able to successfully bundle mobile and data services with traditional voice services across a number of regions, Telecom will find itself increasingly shut out of these high growth markets” Cranna said. Telecom’s reported first quarter decrease in data revenue was caused partly by price decreases, which is a short term effect.

Imminent decisions from the Telecoms Commissioner will also play an important role in determining Telecom’s future, with the Kiwi Share, or TSO obligation under review. “Mr Webb has demonstrated a certain amount of willingness to confront Telecom in his decision regarding interconnect rates, which were a lot lower than Telecom would have liked. It will be interesting to see if he continues in this vein in his calculation of the value of the TSO”, Cranna said.

Telecom’s refusal to consider wholesaling as a viable business model, despite plenty of evidence to the contrary, has required that the Commissioner also make a ruling on this issue. Due very shortly, this decision will play a key role in determining TelstraClear’s future in New Zealand. “TelstraClear has acknowledged building infrastructure in Auckland is crazy; so it has to have a workable wholesaling agreement with Telecom. It also has to strike a deal with Vodafone to offer mobile services.”

These two relationships will be the determining factors in TelstraClear’s survival in New Zealand” Cranna said.

Telecom know this, and will fight the Commissioner tooth and nail if they have to, which probably explains Ms Gattung’s strong language at the press conference” he said.

“Nevertheless, Telecom continues to sit astride the local telco market, with dominant market share in most segments, particularly the corporate user segment, where the high value customers are”, he added. It also continues to dominate broadband uptake, despite a range of competitors offering fibre-based broadband services in the key urban centres of Auckland, Christchurch and Wellington.

About IDC

IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and eBusiness trends to develop sound business strategies. Using a combination of rigorous primary research, indepth analysis, and client interaction, IDC forecasts worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDC's customers comprise the world’s leading IT suppliers, IT organisations, eBusiness companies, and the financial community. Additional information can be found at http://www.idcresearch.co.nz.

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