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Budde: Govt needs 'plan B' in case Telecom fails

Market analyst Paul Budde has told NBR that Telecom needs to take far more radical measures than those announced yesterday.READ ALSO: Analyst: Telecom's commercial survival depends on splitTuanz: Telecom split would be good for NZ

Chris Keall
Fri, 16 Apr 2010

Market analyst Paul Budde has told NBR that Telecom needs to take far more radical measures than those announced yesterday.

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It is now “too late in the game” for any measure bar Telecom being broken up into independent companies, said Mr Budde (read more here).

After assessing Telecom’s earnings downgrade yesterday, and associated job cuts and future capex cuts, Mr Budde added:

“Unless Telecom is able to turn this around and start showing industry leadership the future of the company looks rather bleak and could even get worse.”

The situation is sufficiently perilous, said Mr Budde, that “the government has to have a plan that what they will do in case Telecom falls over".

“Will we simply flick the switch and say ‘No telecommunications services for New Zealand?’ or will they [the government] have to step in to make sure that services continue to be available,” Mr Budde said.

Surely that's a little over-the-top?

“I realise that this could be interpreted as scaremongering but the situation is too serious not to have a plan B in case Telecom spirals down any further,” Mr Budde said.

"The troubles that Telecom New Zealand is facing at the moment are very severe and could potentially undermine the economy of the country as well as its society in general."

The government - which insiders say is close to some kind of separation or other Crown Fibre-related deal with Telecom - had no immediate response to a request for comment about whether it possessed a Plan B, or saw need of one.

Assigning blame
The Sydney-based Mr Budde - a consultant to the Obama Whitehouse, the Australian government, the Dutch government and Telstra, among others - also said he wants to see Telecom step up and take a leadership position on the government’s $1.5 billion Crown fibre initiative.

So far, Telecom has remained coy on its twin bids for the ultrafast broadband (UFB) rollout, citing commercial sensitivity, and Crown Fibre Holdings and the minister have accommodated this closed-doors approach by formulating a shortlist of Crown partners - including non-compliant, nationwide bids - in secret.

Mr Budde said poor government policy - and the arrogant reaction of previous Telecom managers to that policy - was partly to blame for Telecom’s trouble, but that current management also bears culpability.

“The infrastructure design of the new mobile network took largely place under this new management and they also failed to take a leadership role in the development of the Ultra Fast broadband network, said the analyst.

Defining leadership
Asked to elaborate on his thesis that Telecom should show leadership, Mr Budde said the telco had to participate in the ultrafast broadband (UFB) initiative at a national level

“If they miss that and will be relegated to a regional player that would disastrous. So they need to structurally separate and position Chorus as the national UFB player if they are to have any chance of reaching that goal.

Mr Budde said he would also like to see Telecom being “a leader in establishing trans-sector services on the UFB”, by which he meant drawing healthcare, education and other large organisations into the Crown fibre network.

He added: “At the same time Telecom needs to show industry leadership by promoting this trans sector concept as the future telecommunications revenue will have to come from these sectors and not from voice calls.”

Telecom shares (NZX: TEL), which fell 6c yesterday, were down 1c to $2.17 in late morning trading.

Chris Keall
Fri, 16 Apr 2010
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Budde: Govt needs 'plan B' in case Telecom fails