The price of shares in the Telecom Corporation of New Zealand (TCNZ) has fallen by 7 per cent on analyst concerns about the structural dismemberment of the country's biggest network operator and the upcoming departure of its CEO, Paul Reynolds. By Martyn Warwick.
Mr. Reynolds, passed over for the job of CEO at BT, left the UK's incumbent telco in 2007 to take over as CEO of an operator at the other end of the earth. He led the Telecom Corporation of New Zealand though a period of unprecedented turmoil and organisational change, and although personally unconvinced by arguments that TCNZ should be structurally separated into two businesses, nonetheless oversaw the dismemberment and demerger of the company whilst also meeting the shifting and sometimes knee-jerk and panicky political demands of the New Zealand government.
In fact, Paul Reynolds was the rock around which "a maelstrom of change, when irresistible market forces met with immovable politics" raged (as the New Zealand media had it) but the relentless grind has obviously taken it's toll and he will leave his post in December.
Ever since Reynolds took over TCNZ in September 2007, it has been a political football but long before he arrived the New Zealand populace were dissatisfied with the telco's performance, arrogance and reputation expensive services and for poor customer relationship management. This, it was claimed, was because of its monopoly market position.
In fact, in 2006, before Paul Reynolds parachuted in from London, New Zealand's then Labour administration had responded to publicagitation for change and come up with a plan to divide to cut the telco into three parts - in much the same way that Julius Caesar tried to deal with Gaul, and with the same lack of success.
The net result of this so-called 'operational separation' was a swift fall in revenues and the collapse of the telco's share price.
It fell to Paul Reynolds to steady the ship. Under his leadership, and despite some serious operational and technological difficulties (TCNZ's much-vaunted 'XT' broadband fibre network crashed on four different occasions, blacking out many of the country's urban centres and severely disrupting business and resulting in the telco having to pay out huge sums in compensation to tens of thousands of subscribers) he managed to drive up the company's share price by 27 per cent.
Then Frank Mount, TCNZ's 'Chief Transformation Officer', who had been personally recruited by Paul Reynolds, resigned amidst the furore about the outages. After that, the New Zealand government was on the telco's case (and back) like a giant leech.
Last year, the carrier was given a choice that, in reality, was no choice at all: the selling-off of either its network or retail operations (i.e. structural separation) or the placing of all its assets into another vehicle over which it would not be able to exercise majority control (the government's ill-thought-through notion of demanding the construction of a massively expensive super-fast broadband network to cover 75 per cent of the geographically difficult nation meant that TCNZ would, by government fiat, be prevented from simultaneously providing fibre connectivity and a retail service).
Reynolds was in a tight spot and fighting with both arms tied behind his back, his legs manacled together and his head in a bag. Nonetheless, he opted to oppose structural separation. Despite his efforts he was leaned on heavily by politicos and matters took a turn for the worse when TCNZ lowered its earnings forecast by $100 million - a hell of a lot in a small country - and slashed jobs.
In the end the attrition succeeded and late last year TCNZ said structural separation would be effected by "late 2011." That date draws nigh and all the indications are that the newly separated services and network entities will have lower credit ratings than they do now. Not a good start to independent life. The simple fact is that the loss of TCNZ's copper network will be a real blow that could push the new company off course before it gets going.
The split, which is expected to be complete by year end, will result in the creation of two independently listed companies, New Telecom (the retail business) and Chorus, (the network infrastructure company). Chorus, whixh is expected to be a cash cow in the years to come will be loaded with most of TCNZ's net debt - to the tune of some $1.7 billion. However, New Telecom doesn't escape unscathed. It will also start life owing some $800 million.
With masterly Scots understatement, Paul Reynolds says, "It will be a good time to hand over to a new CEO." Too right. He must be glad to be getting out of it and for sure we'll hear from him again.
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