Opinion: Will Reynolds improve on Gattung's $3.1m a day loss for Telecom?

By NZPA

Friday 29th June 2007

There's a nice symmetry about today being Theresa Gattung's last day in the job as chief executive of Telecom -- Telecom's share price started the day at half the $8.95 it was when she started in 1999.

That means on her watch $9 billion has been wiped off Telecom's value.

As boss of the country's largest listed company she was one of New Zealand's highest paid chief executives with a package of just under $3 million. She had a base salary of $1.1 million and the rest was paid in performance bonuses.

By my calculation, that means Telecom's value fell by $3.5 million every day of the 2524 she was in the top seat.

Is this performance that should be rewarded, or did I miss something here? The top exec is paid $3m a year to lose more than that amount every day.

Maybe she was unlucky to take over as the dot.com boom was getting into its stride, but it's still a staggering number. She has to take her share of blame for the $3 billion AAPT fiasco in Australia that helped push Telecom into a $435m loss in the last financial year.

What is really comforting (not) is her replacement, Paul Reynolds, has negotiated a higher package -- a $1.75m base salary, plus the same in bonuses for average performance and more if for outstanding performance. Plus he gets $1.75m in performance share options.

Announcing his appointment yesterday, Telecom was busy patting itself on the back for securing the head of British Telecom's wholesale division.

Certainly the 50-year-old, 2 metre-tall Scot with a PhD in geology has an impressive CV. He has held senior roles in marketing, technology and strategy with BT since joining in 1983.
Analysts said his wide-ranging experience meant he had the right stuff to oversee Telecom's move into a new environment.

"His CV is extraordinarily comprehensive for a senior telecommunications executive, he's had experience in an unusually wide range of areas, so he looks like an excellent choice," said Forsyth Barr analyst Guy Hallwright.

He beat off front running internal candidate, chief financial officer Marko Bogoievski, who is highly respected in the market.

The decision to appoint an outsider, and Reynolds in particular, makes some sense.

The company's intractable approach provoked the Government to interfere in the market and the company to force tighter regulation and a split-up of the company. Reynolds has been to the fore in the same process BT has been through.

Bogoievski carried the baggage of "old Telecom" and Reynolds can bring a fresh approach with credibility.

Two year's ago, BT voluntarily split into retail, wholesale and network businesses and it is that model that the Government is looking to replicate here.

Telecom offered to split into wholesale and retail but the Government wants something more like the BT split.

However, some fund managers believe Reynolds has secured something of a hospital pass.

Fund manager Simon Botherway of Brook Asset Management questions the economic wisdom of Telecom investing in next generation broadband because of effects of Government meddling in the company and the market.

After BT's split, Reynolds led the rollout of a 10 billion ($NZ26 billion) "21st Century" new internet-based network. Analysts assume he will replicate that to scale here.

Kevin Bennett, of fund manager AllianceBertstein, said Reynolds faces the dual problem of operating the company in a highly competitive retail market while coming to grips a new regulatory framework and trying to get the next generation network up and running.

"The BT experience suggests he is very skilled in that already. So that's unequivocally good news."

Bennett said the Government's determination on the separation of the company, whether structural or operational, was due in early October, just days after Reynolds takes the reins.

"He won't have much chance to influence the environment he's operating in and that's probably the bigger driver as to where Telecom is going in the short term."

Meanwhile, he will also certainly have to find a replacement for Bogoievski and possibly other top executives from the old guard.

Reynolds said the issues Telecom faces are the same as those confronting all telcos -- innovation, speed, regulation and working with competitors and customers.

In this week's brief visit here, he met staff, government officials and some Telecom wholesale customers.

"From that, I'm going to work out a plan and we'll commit to doing it and we will meet our commitment," Reynolds said.

While he repeatedly said he was here to listen and would not impose the BT experience as a blueprint for New Zealand, he has been criticised at home for much the same reasons as Gattung -- using a the company's dominant position to stifle broadband development and over-charge.

Reynolds says he will focus on what the customers want and that will flow through to meeting shareholder expectations.

British telecoms writer Richard Thurston told Radio New Zealand that BT's new network, which has given broadband access to 99.6% of the population, did not go entirely smoothly although in the end had "probably been successful".

"A lot of businesses don't feel they have been listened two by BT."

Thurston said Reynolds did not really consult business over the roll-out and many were angry.

"He's done a lot for BT -- whether he's done a lot for British telecoms, I don't know.

"Maybe business users in New Zealand should get their tuppence worth in fairly quickly to make sure they get what they want."

He won't say yet if investing in a new network is the way to go, but noted broadband was "the foundation of the modern communications environment".

As part of the new broom, Reynolds will move head office to Auckland from Wellington where he will reside with his wife and 15 year-old son Gordon. Twin daughters Catriona and Kirsty, 18, will remain in Britain to start university.

He says he is a champion of work-life balance and has plenty of outside interests including salmon fishing, playing his Fender Stratocaster guitar and supporting the Celtic football club.

Although his is an enormous salary by New Zealand standards, it wasn't much of a payrise from his BT job. What the new job gives him is a chance to control the show.

Let's hope for him and for Telecom shareholders it pays off.

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