Today, Telecom becomes Spark. But as Hamish Fletcher of
the New Zealand Herald reports, transforming the phone
company is going to require much more than a name change.
Simon Moutter today hoists a new flag up Telecom's mast,
marking its tack away from two decades as New Zealand's safe
and stodgy telecommunications provider.
For the managing director, it's a signal of the company's new
direction, towards a bright digital horizon of revenue growth
and new services such as internet television.
Moutter's flag, bearing the new company name Spark, aims to
jettison Telecom's past identity and chart a course towards
becoming a competitive provider of communications,
entertainment and cloud computing services.
Moutter revealed this new direction to investors 15 months
ago, facing up to the company's uncompetitively high costs
and a revenue structure heavily reliant on a declining
His attempt to reach more bountiful shores is expected to
take three to four years, and has involved some tough
The most public of these was when the company axed more than
1000 staff last year in an effort to reduce costs.
It also pulled back from the Australian market, selling the
rest of a poor-performing telco business there, left the Cook
Islands and returned its focus to the local market.
Even as it slims down, Spark is still one of the largest
companies on the New Zealand stockmarket, with revenue of
about $4.2 billion in its most recent annual result, 6600
employees at the middle of last year, and is one of the
country's biggest investors in technology.
While more cost-cutting is expected, Moutter is adamant that
he didn't come back to Telecom to "manage a slow decline", by
just taking a knife to the business.
Moutter worked at Telecom until 2008, leaving to become chief
executive at Auckland International Airport. He returned in
With Moutter at the helm, Telecom has also bought businesses,
started new ventures and invested in assets such as an extra
block of 4G spectrum.
It has also stemmed the loss of market share in the broadband
business, and won more mobile customers.
Spark has a lot more to do "to achieve its ambitions", but
Moutter says he is pleased with the way the company is
working through its plans.
"This executional excellence is why the time is right to make
the brand change," he says.
He may be upbeat, but analysts -- the weathermen of the
sharemarket -- say it's too early to tell if the company's
strategy will succeed.
"You don't turn a ship around like Telecom straight away,"
says First NZ Capital's Greg Main.
"You can make some easy gains, but the key question is can
they really re-orientate their systems and processes
internally to be a lot more agile and without any hiccups
along the way?"
And there are still dangers ahead.
At IDC -- which studies industries such as telecoms and IT --
associate research director Peter Wise says Spark is
operating in a shrinking industry.
"IDC is forecasting NZ fixed voice, broadband and mobile
revenues to decline by 2.5 per cent a year over the next 5
years ... Spark and the rest of the telco industry have a
tough road ahead."
Harbour Asset Management's Andrew Bascand sees no sales
growth at the company in the next three years.
Forsyth Barr senior equity analyst Blair Galpin believes it
will be two years before it becomes clear whether Moutter's
strategy has succeeded.
"For me, 2016 is the point where we can start making a call
on how well Telecom has done," he says.
"2016 is the year when you'll start to have bedded down the
cost savings that Simon and Telecom have been working
through, plus you start to see the benefits of that
investment and start to see real benefit of a higher market
share than they would have otherwise got."
There are, however, already signs of change.
Asked if Telecom is meeting its own milestones, Galpin says
the company had indicated 18 months ago that it wanted to
reduce staff levels and save on costs.
"We've seen that, so they get a tick mark for that," he says.
"Things like even the Spark rebrand being quite quick, the
decision to do [internet television service] Lightbox and
then launching it relatively quickly for Telecom, these are
the sort of things to me that are signs of a company that is
Craigs Investment Partners research analyst Arie Dekker says
the company can be judged "reasonably well" on its moves to
hold broadband market share and attract mobile customers.
"Broadband market share and fixed market share declines have
definitely slowed or stopped," Dekker says.
"In mobile, which is an area where they've underperformed,
they've looked to add customers and add revenue growth."
First NZ Capital's Main also believes the company has
performed in both these areas.
"They seemed to have held market share in broadband and
that's what they really needed to do," he says.
IDC's Wise says Telecom has been aggressively competing in
broadband and mobile.
"Incumbents can either employ a defensive strategy where they
don't do much and rely on the inertia of customers not
moving, or they can compete and match or even lead the
market," he says.
"I'd say Telecom has moved to proactively leading or at least
very quickly matching the broadband market, not only on price
but also technology ...
"Telecom was six months quicker to market with [faster copper
broadband] VDSL than Vodafone, even though Vodafone is in
theory the more attacking No 2 fixed player."
Moutter has also invested in new businesses and ventures.
These have included buying two cloud-computing businesses,
Revera and Appserv, as well as starting internet television
service Lightbox and data analytics unit Qrious.
Moutter says Spark still has some other "ideas up its
"We wouldn't rule anything out -- one thing I can say is that
we are not going to stand still."
While the prospect of competition in the pay-TV market has
aroused public interest, the company's two cloud-computing
acquisitions are more likely to deliver results to
They are also viewed as a much smarter investment by fund
managers such as Bascand, who is disparaging about Spark
going into internet television.
"The jury is entirely out on their approach to media and the
way they're spending money in terms of kicking off their
media offering," he says.
"I don't want to be too dismissive, because it's quite
uncertain as to how in a couple of years we will be thinking
about media and how we're viewing things, but I don't think a
$20 million or $30 million investment is going to get them
over the line. If you really want to do this, you spend $300
million to $400 million."
And although Moutter has big ambitions for these new
businesses, fund managers are still focused on cost-cutting
measures as a way of the company sustaining its dividend
payment -- and that's where they will fix their attention
when the company reveals its full-year results in a