Telecom Corporation of New Zealand Limited

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Telecom Corporation of New Zealand Limited

Telecom Networks House
68-86 Jervois Quay
Wellington
New Zealand
Telephone: +64-4-801-9000
Fax: +64-4-385-3469
Website: http://www.telecom.co.nz

Public Company
Incorporated: 1987
Employees: 6,906
Sales: NZ$5.53 billion ($2.69 billion) (2002)
Stock Exchanges: New Zealand Australia New York
Ticker Symbols: TEL; NZT
NAIC: 517110 Wired Telecommunications Carriers; 517212 Cellular and Other Wireless Telecommunications

Telecom Corporation of New Zealand Limited is that country’s dominant telecommunications company, providing fixed line and mobile telephony, Internet, data network, and wireless network services. The company also publishes telephone directories and operates Xtra, the country’s leading Internet access provider. Telecom New Zealand is also that country’s largest company, with sales of more than NZ$5.53 billion, and the country’s dominant publicly listed company, worth approximately one-third of the entire share value of the New Zealand stock exchange. The company is also listed on the New York and Australian stock exchanges. Formed through the privatization of the former government-owned telephony monopoly, a part of the New Zealand Post Office, Telecom New Zealand has been striking out into international waters at the beginning of the 21st century, buying up Australia’s number three telecommunications provider, AAPT. The company also owns 50 percent of the Southern Cross undersea cable project, which laid a fiber optic cable to connect New Zealand and Australia directly to the United States. Facing increasing competition at home and government pressure to reduce its third-party rates, Telecom New Zealand has targeted the Australian market for future growth, where it operates mobile telephone and Internet access subsidiaries through AAPT, as well as other markets, such as Fiji and the Cook Islands, in the Australasian region. The company is headed by Chairman Roderick S. Deane and CEO Teresa Gattung.

New Zealand Telecommunications Pioneer in the 1800s

Telecom Corporation of New Zealand was created in 1987, when the New Zealand government spun off the telecommunication operations of the New Zealand Post Office as a separate state-owned enterprise. The following year, the government entirely deregulated the New Zealand telecommunications market, making it the first country in the world to do so. In 1990, Telecom New Zealand was privatized. By then, the company had been providing telecommunications services to the New Zealand islands for more than 125 years.

New Zealand entered the modern age of communications in 1862 when the first telegraph line was constructed by the country’s military between the towns of Christchurch and Lyttleton, following the South Island’s railroad. Additional telegraph networks soon appeared, covering much of the South Island; telegraph services were only later introduced to the North Island.

In 1865, the New Zealand government moved to place the country’s growing telegraph networks under centralized control, establishing the Electric Telegraph Department. In that year, also, the country saw the opening of its first telegraph station in Christchurch.

New Zealand’s telegraph network initially served only the domestic market. In 1876, however, the telegraph department laid the first submarine cable linking New Zealand and Australia, which also gave the country a direct link-up with Europe. By then, the telegraph was on its way toward obsolescence as a popular communications device as news of the invention of the telephone reached New Zealand. By 1877, the first telephone line had been installed in the country, linking Kaiaipoi and Addington. The following year saw the emergence of the first commercial telephone service, using a privately built line in Christchurch.

In 1881, the New Zealand government merged the Electric Telegraph Department into the national post office, creating the New Zealand Post & Telegraph Department, which later became the New Zealand Post Office (NZPO). The NZPO was granted the authority to construct the country’s telephone exchange system, opening the first exchange in Christchurch in 1881. The NZPO soon extended its network throughout the country, opening a series of bureau stations, which combined telegraphic services with public telephones. The NZPO was quickly granted a monopoly on the New Zealand telephone market to prevent foreign telephone companies from setting up rival networks.

By the dawn of the 20th century, telephone use was on the rise, covering much of the country. In 1912, the government passed a new Country Telecommunications Act, which, among other provisions, enabled people in rural areas to build their own telephone networks and link into the public network. That year also saw the installation of the first automatic exchanges, which enabled the NZPO to increase its traffic volume.

By the end of the 1920s, nearly all of the country had been connected to the telephone network through private automatic branch exchanges, as the telephone became a common feature in people’s homes. The NZPO then counted some 125,000 subscribers. In 1930, the NZPO debuted its first international toll call, linking New Zealand’s phone network to that of Australia. By 1931, international toll calls had been extended to Great Britain as well.

The NZPO continued to build up its subscriber base over the following decades, numbering some 450,000 customers in the 1950s, and nearing 700,000 by the end of the 1960s. NZPO kept up with the many technological advances being made in the telecommunications industry, switching over the New Zealand market to subscriber toll dialing. In 1970, the NZPO began providing data transmission over its telephone lines. The following year, with its subscriber base topping one million phone lines, the NZPO launched its first satellite station, at Warkworth.

Independent Telecommunications Provider in the 1990s

By the 1980s, the New Zealand government began planning the deregulation of the country’s telephone market. To achieve this, the NZPO began restructuring its telephone unit as an autonomous business. In 1987, that business was spun off as a separate company, Telecom Corporation of New Zealand. Initially given the status of “state-owned enterprise,” that is, a government-owned business operated on a commercial, for-profit basis, Telecom New Zealand began preparing for the next stage, that of becoming a fully privatized company.

In 1988, New Zealand made history when it became the first country to deregulate its telecommunications market, ending Telecom New Zealand’s monopoly by opening the market to competition. By 1989, the deregulation process was completed, and Telecom New Zealand braced itself for the arrival of its first competitors. The first of these came in 1990, when the Alternative Telephone Company, which later became Clear Communications, set up business in New Zealand.

In that year, however, the New Zealand government privatized Telecom New Zealand by selling it to partners Ameritech and Bell Atlantic for NZ$4.25 billion. As part of the sale agreement, both parties agreed to reduce their initial positions to below 50 percent, a process begun in 1991 when some 30 percent of Telecom New Zealand’s shares was listed on the New Zealand, Australian, and New York stock exchanges. Both Ameritech and Bell Atlantic continued to reduce their holdings, as per the purchase agreement, with each holding less than 25 percent by 1994. While Ameritech sold out its shares in Telecom New Zealand in 1997, Bell Atlantic, later acquired by Verizon, held on to its stake until 2002.

Telecom New Zealand had begun to offer mobile telephone services in the late 1980s. That market brought the company its next major competitor, when BellSouth entered the New Zealand market in 1993 and established its own mobile network. By the mid-1990s, competition for the New Zealand telecommunications market had heated up, with no less than 26 companies entering the market. Although Telecom New Zealand maintained a strong hold on its home market—controlling 82 percent of the domestic market—it nonetheless faced increasingly tight pricing pressures, forcing it to lower its own rates to respond to its competitors.

In response, Telecom New Zealand began exploring new markets. In 1996, the company launched its own Internet access service, Xtra, which quickly became the country’s largest. In that year, also, the company began constructing a new hybrid fiber optic-coaxial cable-based network between Auckland and Wellington, in preparation for the launch of the company’s First Media pay television service. In late 1997, however, the company abandoned that project after investing some NZ$100 million. By then, the company had faced another setback, after it was forced to withdraw from an attempt to enter the Australian telecommunications market through a joint venture. More successful was the rollout of high-speed Internet services, which began in 1998. In that year, the company joined the Southern Cross Cable consortium, which began laying a fiber optic cable to link Australia and New Zealand directly to the United States. Telecom New Zealand eventually acquired a 50 percent stake in the Southern Cross Cable project.

A deep recession in the New Zealand market, coupled with continued pricing pressures, forced Telecom New Zealand to look again at international expansion at the end of the 1990s. The company acquired a stake in Fiji Telecom, and set up a subsidiary in the Cook Islands, before turning to its larger neighbor in Australia. Leading the company’s new strategy was Teresa Gattung, who took over the CEO spot in 1999 at the age of 37, becoming New Zealand’s highest paid executive.

Company Perspectives:

Telecom’s goal is to be the best performing, customer-focused online and communications company in Australasia.

Targeting the Australasian Market for the New Century

In 1999, Telecom New Zealand surprised the Australian market by bidding for that country’s AAPT, then facing a takeover bid from rival Cable & Wireless Motus. By the end of that year, Telecom New Zealand had succeeded in winning over AAPT’s management and shareholders, stepping up its holding to 78 percent. Initially, Telecom New Zealand had no intention of acquiring AAPT entirely; the relationship between the two companies’ management proved strong, however, and by the end of 2000, Telecom New Zealand had acquired 100 percent of AAPT.

Back at home, Telecom New Zealand moved to consolidate its position in the fast-growing mobile telephone sector, buying up most of its mobile telephone network resellers. The company also began establishing partnerships with other companies, notably Microsoft, which invested more than NZ$200 million in Telecom New Zealand. In 1999, the company signed an outsourcing agreement with EDS Corp., worth some NZ$1.5 billion, which turned over Telecom New Zealand’s information systems management and billing to the U.S. company.

After launching its Jetstream ADSL Internet access service at the end of 1999, the company celebrated the completion of the Southern Cross Cable project, which was switched on in 2000. In that year, the company’s mobile telephone customer base swelled to one million; meanwhile, the company’s Xtra Internet service had attracted some 300,000 customers.

In 2001, Telecom New Zealand spent NZ$38 million laying a new high-speed cable linking the North and South Islands. At the same time, the company rolled out its new-generation CDMA (code division multiple access) wireless network, which offered coverage of more than 98 percent of New Zealand’s populated areas. That network grew quickly, building up a customer base of more than 200,000 subscribers by 2002.

Yet Telecom New Zealand faced new difficulties as the new decade progressed, particularly at its AAPT subsidiary, which was struggling to hold on to a slipping subscriber base. By the end of 2002, after posting losses for its 2002 year, the company was forced to abandon its plans to impose itself as the major telecommunications group in Australia, lowering its ambitions to focus instead on that country’s business sector. Adding to the company’s troubles was a decision by the New Zealand telecommunications regulator to require the company to lower its interconnection rates for its competitors, a move that suggested the possibility of increased government-led rate pressures in the future.

By the beginning of 2003—the halfway mark in the company’s fiscal year—Telecom New Zealand appeared to be back on the profit track. If its international ambitions had been curtailed somewhat, the company nonetheless continued to enjoy a dominant position in its home market, and a commitment to remaining a major player in the Australasian region for the new century.

Principal Subsidiaries

Telecom New Zealand Limited; Telecom Mobile Limited; Xtra Limited New Zealand; Boost Mobile New Zealand Limited; Telecom Retail Holdings Limited; Telecom Cook Islands Limited (60%); TCNZ (UK) Investments Limited; TCNZ (United Kingdom) Securities Limited; TCNZ Finance Limited; Telecom Investments Limited; Telecom New Zealand Finance Limited; TCNZ Financial Services Limited; Telecom Enterprises Limited; Telecom Wellington Investments Limited; Telecom Pacific Limited; TCNZ Australia Investments Pty Limited; Telecom Southern Cross Limited; TCNZ (Bermuda) Limited; Telecom Southern Cross Finance Limited; Telecom New Zealand Australia Pty Limited; TCNZ Australia Pty Limited (95%); Telecom New Zealand Japan; Telecom New Zealand UK Limited; Telecom New Zealand (UK) Licences Limited; Telecom New Zealand USA Limited; AAPT Limited (Australia); Cellular One Communications Limited (Australia); Connect Internet Solutions Pty Limited (Australia); Commerce Solutions Limited (Australia); Associate Companies; Pacific Carriage Holdings Limited (Bermuda; 50%); Southern Cross Cables Holdings Limited (Bermuda; 50%).

Principal Competitors

Nippon Telegraph and Telephone Corporation; Verizon Communications Inc.; SBC Communications Inc.; Vivendi Universal S.A.; France Telecom SA; Tokyo Electric Power Company Inc.; AT&T Corp.; WorldCom Inc.; Vodafone Group Plc; Bee Inc.; British Telecommunications plc; Telefonica SA; Telecom Italia SpA; Nokia Group; TRACTEBEL SA; Sprint Communications Company, L.P.; KDDI Corporation; BellSouth Corporation; Bouygues SA; Ericsson LM Telephone Co.; Qwest Communications International Inc.; MCI Group; Bell Canada; GST Telecom Inc.; Cingular Wireless; Royal KPN NV; Cable and Wireless Ireland Ltd.; Lucent Technologies Inc.; Carso Global Telecom S.A. de CV; PacifiCorp.; Telus Communications Inc.; Citizens Communications Co.; Scottish Power PLC; Cable and Wireless PLC; KT Corporation.

Key Dates:

1862:: The first telegraph line is constructed between Christchurch and Lyttleton.
1865:: The New Zealand government creates the Electric Telegraph Department.
1877:: The first telephone line in New Zealand is installed.
1881:: The government merges the Electric Telegraph Department into the New Zealand Post Office.
1987:: Telecom Corporation of New Zealand, a “state-owned enterprise,” is created as part of the government’s plans to deregulate the domestic telecommunications market.
1989:: Deregulation is completed.
1990:: Telecom New Zealand is privatized through sale to Ameritech and Bell Atlantic for NZ$4.25 billion.
1996:: Telecom New Zealand launches Xtra Internet access service.
1999:: Telecom begins the acquisition of AAPT, the third largest telecommunications provider in Australia.
2000:: The acquisition of AAPT is completed; the company rolls out the CDMA (code division multiple access) wireless network.
2002:: Losses force the company to roll back its ambitions in Australia, focusing instead on the business market in that country.