New Front Page story from NN website:
newbridge.com
Also some FT news from some of NN's customers:
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WEDNESDAY NOVEMBER 11 1998 Telecoms
NZ: Telecom company sees the future on the web
Roderick Deane, the chairman of Telecom NZ, aims to use the internet to boost growth in the home market, writes Peter Montagnon.
Roderick Deane, chief executive of Telecom New Zealand, has what seems a rather odd ambition for the head of an important services company. He hopes that in the not too distant future his customers will sort out their own telephone breakdowns without bothering one of his engineers.
The opportunity will occur as part of his vision for building internet services into a significant medium-term source of growth.
Telecom is trying to promote the internet as a means of getting more revenue out of its home market. If customers can use it to access Telecom's own computer system and get it to repair faults, Mr Deane will save overheads as well as selling additional services.
The company, New Zealand's largest corporation, accounting for about a third of the country's entire stock market capitalisation, badly needs the idea to succeed. Plagued by severe competition and falling prices, especially on international calls, it still sees its future - unusually for a large telecoms company - very much in its home market.
While operating revenues grew 10 per cent in the year to March, the rate slowed to just 3 per cent in the first quarter of 1998-99. Despite sharply rising volumes, analysts expect this sluggish trend to be maintained in the second quarter.
Part of the problem is the New Zealand recession; part is more structural. Mr Deane says he expects the price falls to continue for the next two or three years. On that basis, the decision this April by Ameritech of the US to sell its 25 per cent stake might be seen as reflecting a gloomy view - especially as the other large foreign shareholder, Bell Atlantic, has also set up an elaborate capital market scheme that will allow it to withdraw in due course.
Mr Deane, a quick-thinking former central banker, rejects the suggestion. Ameritech sold out because it wanted to focus more closely on Europe, he says. The offering of Ameritech's shares to the market was heavily oversubscribed, which indicates that investors believe in Telecom's prospects.
"The super growth has gone," says Andrew White of J.B. Were in Auckland. But Telecom's decision to concentrate on its home market rather than indulge in adventurous forays abroad is a positive factor.
Data transmission will be a substantial source of growth over the medium term, says Mr Deane. The company is pushing the internet not only to its customers, but also to its suppliers both to encourage businesses to go online and to generate cost savings.
Another source of growth is the cellular sector. Only 16 per cent of New Zealanders have mobile phones, a much smaller proportion than neighbouring Australia or Sweden. Competition from the newly arrived Vodafone, which bought the local cellular business of Bell South, will be vigorous. On top of that, penetration is also low in specialised services such as high-quality ISDN lines.
"If you add all that, you can still get a growth story for us alongside falling costs," he says. But he admits the elements need to come together. The lesson of the Asian crisis is that expansion overseas is risky, he adds, noting that some companies that invested heavily in south-east Asian markets have had to take large write-downs.
Analysts, meanwhile, remain confident that continued contribution from cost-cutting will allow revenues to rise while the newer areas such as data develop. With costs held back, operating profits could still grow at 8 per cent, which would mean faster growth in earnings per share as debt comes down, says Guy Hallright at CS First Boston in Wellington.
Telecom's strong cashflow is one reason why there is little market worry at the apparently tight dividend cover. Last year, dividends of 43 NZ cents per share took up almost all net normalised earnings of 45.6 NZ cents.
With a fully digital network and broad coverage for cellular, Telecom does not need a heavy investment programme, says Mr White.
One cloud on the horizon remains the possibility of tighter regulation, especially if the Labour opposition party wins the election due to be held over the next year.
Helen Clark, Labour leader, notes that while competition has affected international and long-distance calling as well as services to business users, the local-call market has proved hard for outsiders to penetrate. "If Telecom was a state monopoly we'd defend it," she says, "but we're not in the business of defending private monopolies."
It is an unspecific threat and assumes a Labour victory, but it still rattles Mr Deane, who is proud of his record of service quality improvements and Telecom's high approval rating among the New Zealand public.
Three-quarters of Telecom's shares are held offshore, he says, and regulatory interference would damage market confidence. "If you want to do a Malaysia, regulate us," he says. "It would be the most unwise thing a politician could do to New Zealand."
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THURSDAY NOVEMBER 12 1998 Telecoms
AT&T & MCI to compete on BT service
By Alan Cane
<Picture: AT&T>AT&T, the largest US long-distance operator, and MCI/WorldCom, the fast- growing alternative carrier, will for the next two years compete to distribute the services of Concert Communications, British Telecommunications' global supercarrier, in the US.
BT announced yesterday that AT&T had become a non-exclusive distributor of Concert services in the US. The UK group and AT&T announced a global alliance earlier this year which should see the two companies co-operating to develop a global network based on internet technology.
BT, however, has an existing agreement with MCI to distribute Concert services on a non-exclusive basis. This is a consequence of the deal through which WorldCom acquired MCI earlier this year, buying BT's 20 per cent stake in the US company in the process.
WorldCom, however, is likely to favour offering customers its own services over Concert's equivalent offering. It said yesterday that its chief commercial objective was to bring as much traffic onto its own network as possible.
WorldCom's strategy is heavily based on the fact that it owns its international networks and is therefore able to control the quality of service it offers.
It is able to offer its customers advanced services such as frame relay and asynchronous transfer mode (ATM) which are also available from Concert. It would, therefore, offer its customers Concert services "when it makes sense".
BT said that AT&T will sell the Concert portfolio under the AT&T Concert brand. Concert is one of a number of global supercarriers competing for the business of large international customers. It has some 4,400 customers in 52 countries. Committed contract revenue from these customers comes to $2.75bn, BT says. The BT/ AT&T deal remains subject to regulatory approval.
It has been clear since WorldCom won the battle for MCI that BT would have to seek a partner to help distribute Concert services in the US. The AT&T agreement is seen as preferable to buying a US telecoms company at today's high prices.
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