This week I’ll be looking at Telecom’s five biggest headaches, and how to solve them. Collect the set.

FINDING BETTER MOBILE CUSTOMERS
Today, Telecom holds 47% share of the mobile market, but only 35% of the revenue. Vodafone’s current monopoly on W-CDMA (most phone makers have simply stopped releasing models for Telecom’s CDMA) means it hogs most of the high-end consumer and business customers.

Telecom’s new W-CDMA 3G network, launching June, will level the playing field. The ex-state telco will finally have not just a single BlackBerry, but many BlackBerries and the latest, hottest models. Finally, we’ll have Telecom phones with SIM cards. Nice. And at some point, iPhone too (for RIM, Apple and others always favour more than one carrier, all networks being more or less equal).

Chief executive Paul Reynolds also sees Gen-i becoming more competitive after “T-day”, able to throw in better mobile options when it’s pitching for business. And he’s quite right, it will, especially as Gen-i chases juicy unified communications deals against the likes of HP/EDS. (A face of the future: Gen-i boss Chris Quin, who’s totting an iPhone running on Telecom’s 3G network, already operational for inbound roaming – a $100 million market that Vodafone currently holds 90% of, by ABN Amro’s estimate).

Sure NZ Communications may finally launch around April – possibly as Virgin Mobile NZ - with its hybrid network that includes its own cell sites, plus those piggybacking on Telecom and Vodafone towers. But an insider at an industry lobby group doesn’t see it cherry-picking many high-end customers. Big accounts will want it to prove itself for at least 12 months before they do any deals.

Do expect NZ Comms to have an impact on the Commerce Commission's coming determination on mobile termnation rates, however, or the money that telcos charge each other (then on-charge to you) when calls cross between their networks. A lower - or even zero - MTR fee could wipe tens of millions from Telecom and Vodafone's revenue.

No guidance
So Telecom should do better in mobile, but Mr Reynolds would not elaborate in any deal for NBR at Telecom’s Q2 briefing. The only solid metric he’d offer was that Telecom is aiming for 50% market share. If I were a shareholder, I’d want much more detailed guidance than that surrounding this make-or-break move.

Certainly, the only way is up. In its first-half result announced Friday, Telecom's mobile revenue fell 6% to $399 million.

An expensive game of leap-frog
Telecom is spending $574 million on its W-CDMA changeover (and the cost of keeping its old CDMA network open), which could be termed the self-inflicted half of Telecom’s profit-destroying capex bubble (the rest coming government-inflicted costs associated with operational separation).

But while the $574 million spend up will redress Theresa’s Folly of sticking with CDMA long after it had become obvious she was backing the wrong horse, it’s just the start of a long, expensive game of cellular leap-frog.

From its launch, Telecom is promising speeds of up to 14Mbit/s on its new network, as long as your cellphone supports HSPA+ (and presumably this full-throttle option will only be available in limited areas from T-Day; half of the $574 million spend is planned for Telecom’s 2009/2010 FY).

That will give it a theoretical top speed above that of Vodafone’s HSPA network, which tops out at 7Mbit/s (in practice HSPA has such a tiny slither of coverage so far that I’ve almost never got a signal, an top out around 1.7Mbit/s). Vodafone says it won’t bother adding HSPA+ support yet, since there aren’t any HSPA+ phones available yet.

Regardless, something during 2010 or beyond, Vodafone will upgrade its mobile network to LTE (so-called “4G”) technology, which will boost cellular download speed to a landline-like 20Mbit/s or faster (in fact, LTE will support speeds of more than twice that, but actual speed will be dependent on factors such as how many customers are accessing an LTE base station at one time).

Such 4G technology will arrive, as sure as night follows day. Overseas, many carriers are already poised to follow the LTE upgrade path, as analyst Paul Budde noted earlier for NBR.

Across the ditch, Telstra has already gone live with its 21Mbit/s "NextG" HSPA+ network, with a possible upgrade to 42Mbit/s at the end of this year.

That means around 2010 or 2011, Telecom will have to find another whack of money for a fresh mobile upgrade of its own. At least this time, it’ll be following an evolutionary upgrade, rather than having to junk its old network and start again.

Incidentally, at its Q2 presentation, Dr Reynolds said New Zealand's 110% mobile penetration could slow growth. Not so, according to ABN Amro analysts Geoff Zame, who notes that many European markets have 150% penetration, largely thanks to the proliferating number of 3G modems, dongles and other SIM-card packing accessories.