Last updated: 16 Jul 2012 Update History
Report Status: Archived
Report Pages: 20
Analyst: Paul Budde
Publication Overview
Published since 1983, Australia’s first telecommunications and new media newsletter covers national and international business strategies and government policies in relation to fixed and wireless broadband and other smart infrastructure, the digital economy, digital and mobile media, smart grids, e-health and e-education.
Executive Summary
For most of the last ten years BuddeComm has had questions regarding the position of TelstraClear in the New Zealand market. There have been as many strategies as there have been CEOs of its mother company in Australia; no clear direction; and a hotchpotch of investments and initiatives – no clear longer-term strategy at all. Over that period it has been our view that the company was not serious about its investments in New Zealand, and one of the scenarios for a solution to that situation would be that Telstra would eventually leave the country (always keeping, of course, a presence for its Trans-Tasman business). Another scenario that we mentioned on several occasions was a takeover of Telecom New Zealand by Telstra.
At the start Telstra’s expansion into New Zealand was a defensive move, following Telecom New Zealand’s purchase of AAPT in Australia in 2000. From then on it became a game of tit-for-tat, with everybody losing in the end. Telecom was the first one to move out when it sold its AAPT business at a great loss, and, in the absence of the need for a defensive strategy to stay in New Zealand, it became only a matter of time before a major decision was going to be made about the future of TelstraClear.
Vodafone New Zealand is now talking to Telstra about acquiring TelstraClear and rumours have it that this is a prelude to Telstra taking over Telecom New Zealand.
This raises the possibility of three interesting outcomes.
With the Australian NBN deal done Telstra is sitting on a lot of cash and is exploring where it wants to invest. If the rumours regarding the takeover of Telecom are not true then obviously it would have taken a look at New Zealand and come to the conclusion that TelstraClear and New Zealand didn’t fit into its future investment picture so in that scenario it will have decided against a New Zealand investment and would opt for the exit strategy.
On the other side, if the rumours prove to be correct then Telstra will have come to the conclusion that there are synergies in buying the Telecom operation across the Tasman and that such a merger would lead to very significant cost savings in New Zealand, basically making it, from a telco perspective, just another state of Australia.
This strategy would fit in with the global trend, where, in order to survive in an environment in which revenues are either flat or going down and where new technologies are being developed that will undermine their traditional revenues by OTT operators, telcos have no option but to cut costs; and this merger could indeed assist in that.
For Vodafone, on the other hand, in a telecommunications market that is blurring the borders between mobile and fixed infrastructure Vodafone is in need of a better presence across these areas. It has made moves in the past and these current negotiations herald a further step in that direction. It will pick and choose the TelstraClear elements it likes and over time merge them into the Vodafone business. Bundling mobile and fixed-line services will be a key issue. It can also lay its hand on more spectrum and some good backbone networks, which will be welcome in relation to the rollout of 4G; and in general it will be able to extend its customer base in the SME and corporate markets.
Another interesting conclusion we arrive at here is that this obviously means that Vodafone will keep its New Zealand /Australia business. The two are closely integrated and it will cost serious money to separate them. The strategy in Australia seems to be a slow merger of infrastructure between Vodafone and Optus and that could, over time, either lead to a different position for Vodafone in the Australian market, or to a more gradual withdrawal, depending upon how the company performs over the next year or so.
Back to New Zealand ….. if Telstra does not take over Telecom it is hard not to conclude that Vodafone will become the long-term dominant player in the New Zealand market. So this will mean that there will be significant scrutiny of the possible deal. But the government and the Commerce Commission will also need to accept that the New Zealand market does have competition limitations – it will have to be innovative in planning how to balance the competition issues with the commercial realities. Perhaps some stringent wholesale/resale clauses and sharing of mobile infrastructure with companies such as 2Degrees will be attached to the merger.
Obviously this will also have a serious effect on Telecom and it will be most interesting to see if this company can transform itself to match the marketing vigour of a rival like Vodafone.
On the other hand, if Telstra is indeed going to take over Telecom the market dynamics in New Zealand could be strengthened, and such a comprehensive scenario might be more attractive to the regulator. One difficulty will be that a more efficient operation will involve fewer people and – be it short-term or long-term – the merger will have a negative effect on the people currently employed within Telecom; and that, of course, will have some political implications. It will be interesting if there is also a growth scenario attached to such plans for jobs in New Zealand.
Paul Budde
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