Telecom slashes Gen-i Australia

Services division will not bid for new mainland Australia contracts, but hopes to pick up more transtasman business.

Telecom is set to slash numbers at the Australian wing of its Gen-i IT services division, and pull out of bidding for Australia-based contracts.

Gen-i Australia numbers will fall from 180 to 60.

The Telecom unit's business across the Tasman has declined substantially since it lost its $1 billion Commonwealth Bank of Australia contract - easily its largest - to Telstra in 2009. Gen-i did not try to renew its CBA contract, with then division head Chris Quin saying the company would focus on small business in Australia.

The company now says Gen-i Australia will focus on corporates with transtasman business. Although it will not bid for new business in Australia, Telecom hopes its Australian subsidiary AAPT will gain some of its existing contracts.

The 120 staff being made redundant are all located in Australia. The redundancies will take place over the next few months as existing contracts are wound down.

Gen-i has around 2400 staff today, new CEO Tim Miles said on a conference call with media.

Some NZ staff also serve Australian clients.

Asked if there would be local redundancies, Mr Miles said not as a result of the Australian cutbacks. However, Gen-i NZ falls under the sweeping review of overall Telecom staff numbers recently announced by CEO Simon Moutter, which will see redundancies "in the hundreds".

Mr Miles told NBR ONLINE the current 180 employee number was near the top of Gen-i's historic staffing range, given many of those who worked on CBA were subcontractors.

Gen-i had around $1.3 billion revenue last year. The company does not break out Gen-i Australia's contribution, but Mr Miles described it as "not significant".

New boss initiated
The new Gen-i boss said he initiated the review after joining the company five weeks ago.

Chasing business in Australia required scale, Mr Miles said. He was faced with a choice of spending a lot of money hiring a lot more people, or pulling back.

The CEO said Gen-i's transtasman client business and has "good growth potential" and accounts for about 40% of New Zealand's international internet traffic, compared to 10% at the turn of the millennium.

Telecom has joined with rivals Vodafone New Zealand and Telstra to build a new transTasman cable at a cost of at least $US60 million, with a completion date flagged for mid to late 2014.

Gen-i's first-half ebitda fell 1.6% to $186 million on a 4.9% decline in sales to $639 million as it faced increasing price competition and had fewer customers on the legacy copper-line services it delivers.

Telecom shares [NZX:TEL] were trading down 1.48% to $2.33 shortly before the midday announcement. The drop was expected as the company went ex-dividend.

Burning the Waka: a brief history of Telecom in Australia
After Telecom completed its $A2.3 billion two-stage purchase of Australian phone company AAPT in 2000, then CEO Theresa Gattung famously declared her company had "burned its waka on Bondi Beach." 

But as the decade wore on, it became obvious that AAPT's tech-boom price had been way too high. The Australian company struggled to break even and Ms Gattung's successor, Paul Reynolds, attempted to sell it.

In the final event, Telecom could only find a buyer for AAPT's retail division, which was sold to iiNet in 2010 for $A60 million. Telecom now runs AAPT as a wholesale operation. 

The AAPT saw Telecom simulatiously sell its 18.1% stake in iiNet (Australia's largest independent ISP) for $A70 million. Telecom also sold its 10% stake in Macquarie Telecom - but maintained its 10% stake in Hutchison Telecommunications, operator of the "3" mobile network.

After Hutchison merged with Vodafone Australia, Telecom's stake converted to a 5% holding in the combined company (which trades as Vodafone Australia). Telecom still holds its little slice.

Now, Telecom is slashing its Gen-i Australia IT services operation. 

The move might lead some to ask why so many NZ businesses fail with pushes across the Tasman.

But even in the tech space, there are success stories. The largest - in terms of profit - is Datacom (majority-owned by Rich Lister John Holdsworth). But Kordia, which recently landed a $A90 million networking contract with a giant Queensland mining operation, says half its $400 million annual revenue comes from across the ditch. And Xero, while yet to turn a profit, is quickly adding customers across the Tasman. Australia is home to 40,000 of the online accounting software company's 135,000 users.