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Hot Topic NBR Focus: GMO
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In key areas, Vodafone’s world view differs sharply from TelstraClear's

Vodafone NZ's CEO talks to NBR ONLINE about the thorny Sky TV partnership issue, off-shoring, Telstra's transtasman clients and new competition.

Chris Keall
Fri, 13 Jul 2012

Analysts agree Vodafone NZ and TelstraClear make a good fit. Vodafone dominates in mobile, but has a lower profile in the corporate market, where TelstraClear is relatively strong. And together, the pair will hold around 26% of the fixed line market – giving Telecom its first real competition in that market.

Yet it’s also hard to imagine two more different CEOs.

Vodafone NZ CEO Russell Stanners, who will lead the combined company – habitually wears a black leather jacket to the office, and is a relatively straight talker.

TelstraClear boss Dr Allan Freeth favours a pinstripe suit. At times he lands clear verbal blows (he dubbed the UFB “network socialism”). But often he’s left audience’s scratching their heads (he told a Tuanzconference the Crown fibre process was a “tragedy of the commons”).

TelstraClear’s war with Sky TV: it’s over
Dr Freeth recently told NBR the terms of his company’s partnership with Sky TV meant a TelstraClear T-Box could only show pay content from Sky TV content - the telco is can’t seek TV series and movies from other sources (at least, if it’s going to charge for them).

TelstraClear’s contract with Sky TV was coming up for renewal, but Dr Freeth said it has reached a commercial “pain point.” It could be worth TelstraClear bearing the short term losses involved in walking away from the Sky TV deal.

Mr Stanners isn’t having a bar of it.

Assuming the Vodafone-TelstraClear deal is approved, he’s happy to double-down with Sky TV.

“We don’t find our contract with Sky TV restrictive,” Mr Stanners told NBR. “We have a good commercial relationship with Sky.”

Vodafone was not in the content or content-sourcing business, the CEO said, and did not want to be.

“Sky TV has teams and teams of people who negotiate content deals. It’s not our core competency.”

Content would be central to the UFB (Ultrafast Broadband fibre rollout), but New Zealanders loved Sky TV and that’s what Vodafone would serve up in any bundled offering, Mr Stanners said.

(Sky TV will welcome this stance, of course, but it still faces a Commerce Commission investigation into its partnerships, and whether its content deals prevent rivals from gaining a critical mass of programming).

End to off-shoring
TelstraClear has outsourced call centre roles over the past couple of years, while Vodafone has gone in the opposite direction, bringing help desk roles back to NZ last year. Last month, Vodafone said it would bring 100 technical roles, currently handled in India, back to NZ.

Speaking to NBR yesterday, Mr Stanners indicated it would be end-of-days for TelstraClear’s Manila call centre.

“New Zealanders like to be serviced by New Zealand people,” Mr Stanners said.

The CEO confirmed there would be job losses, but said these would mostly be back-office roles. It was possible that the cancellation of TelstraClear's offshore contracts could account for many of the eliminated positions.

Handling Telstra’s transtasman customers
Mr Stanners confirmed Vodafone NZ will service the NZ leg of Telstra’s transtasman deals – a key element that (along with Telstra’s 4G spectrum) helps explain why Vodafone paid over-the-odds for TelstraClear.

Better positioned to pitch for full-service corporate contracts
The Vodafone boss said his company would be better positioned to pitch for enterprise business. Previously, it has had to partner with others to offer a full service beyond its core mobile offering. With TelstraClear on board, it could offer fibre and IP services as well.

But there's a catch
Analsyts agree "Vodaclear" will be better placed to bid for big contracts.

However, Forsyth Barr’s Guy Hallwright added a kicker: “The merger removes one potential bidder for large contracts [TelstraClear]. This means Commerce Commission approval is not a certainty.”

There were three big telco players. Now there are two.

Tuanz is broadly supportive of the deal because it produces competitor of serious scale for Telecom, but has warned there is also a danger of a "cosy duopoly" if regulators are not vigilant.

Perhaps with one eye on this argument, Mr Stanners told NBR Vodafone's competitors stretch far beyond Telecom as fibre spreads.

Anyone could offer full telecommunications and IP services over fibre. Vodafone could just as easily come up against IBM or HP or other dozen other IT services companies as it would Telecom.

A place for Dr Freeth?
Is there a place for TelstraClear boss Dr Freeth once the deal is approved?

The deal has yet to be approved. But yesterday the two companies were able to announce Stanners would lead the merged entity.

But it is too early for other decisions, apparently.

With the deal still under consideration by regulators, it would be premature to speak to Dr Freeth's position, Mr Stanners said.

Will Vodafone extend TelstraClear's HFC network in Wellington and Christchurch?
"We’re realy excited about the HFC [hybrid fibre coaxial] network for two reasons. There's a lot of fibre already, and its delivering the 100Mbit/s the government wants today. That's a huge tick in the box for TelstraClear team."

Through its retail and business fibre offerings, TelstraClear has developed skills that help position the combined company well for the UFB page, Mr Stanners says.

And the Vodafone boss's thinking is very much centred on the UFB.

He says it's too early to talk about specific network upgrades, such as whether the HFC network will be extended.

But ultimately, everything will be fibre, and "no one will want to compete with the Local Fibre Companies [Chorus, Northpower, Ultrafast Fibre and Enable] in the last mile," Mr Stanners said.

However, he notes that convergence cuts both ways?

"What is cloud computing? It's telecommunications and IP," said Mr Stanners (who came to Vodafone after roles at IBM and Unisys).

With TelstraClear under Vodafone's wing, he'll have both bases covered.

Chris Keall
Fri, 13 Jul 2012
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In key areas, Vodafone’s world view differs sharply from TelstraClear's