In February 2003 David Bedford, who had been running the Australian business, decided that he would retire, as he really wanted to come back to New Zealand. David had done a great job bringing much greater financial discipline into AAPT that had enabled us to turn that operation to cashflow-positive status, thereby contributing cash to the group, much faster than many people had expected. Marko was passionate about the potential of the Australian business and we decided that the best thing would be for him to run AAPT (while continuing to be Telecom’s chief financial officer) while we searched for David’s replacement. I was strongly of the view that an Australian should run the company, but I was open-minded about what background they should come from. With the benefit of hindsight, I think it was a mistake to ask Marko to both run AAPT and be CFO. He is one of the most dedicated and hard-working executives I’ve ever worked with, but by the end of this stint even his reserves of stamina were depleted.
Trisha McEwan had joined my team as head of human resources early in 2002. I had tried to hire Trisha back in 2000, but at that stage she was head of human resources at Fletchers and was committed to finishing her work there before joining an Australian consulting firm. I had better luck attracting her second time around! Trisha, whose brother is the Saatchi & Saatchi chief Kevin Roberts, was and is a very savvy and effective HR practitioner, highly regarded across Australia and New Zealand, but even with her on board we struggled to find the right person to lead AAPT.
Although we got some early traction under the leadership of new CEO Jon Stretch, an experienced Australian IT executive, the problems with the business were structural, relating to Telstra’s dominance in the market, rather than executional. At that time AAPT was a distant number three in the Australian telecommunications market and Telstra was still majority owned (51.8 per cent) by the Australian government. Despite Rosemary Howard’s claims when she came to New Zealand that Telstra in Australia was much better for its competitors to deal with than Telecom was in New Zealand, that was not our experience. Still, the management team circa 2003 looked like paragons of reasonableness compared to our later experience when Sol Trujillo turned up to run Telstra.
Meanwhile, back in New Zealand it was all about the right strategies and people to drive the business forward. Saatchi & Saatchi had long held the Telecom advertising account — indeed, it was the jewel in the crown for the New Zealand business and the Wellington office of Saatchi & Saatchi in particular. For close to a decade I’d enjoyed a good relationship with James Hall, for many years the general manager of Saatchi & Saatchi in Wellington, although our relationship pre-dated that as he was the BNZ account director when I was chief manager – marketing for the bank in the early 1990s (at that stage he was at Colenso). He took up Kevin Roberts’s challenge to leave New Zealand and run Saatchi in the UK, based in London. However, after a short time there, there was a dust-up which turned into a bust-up, and James left Saatchis and returned home to join forces with a few other ex-Saatchi Wellington mates of his in an agency called Assignment. I thought James was a terrific advertising guy and he had been a passionate extended member of my marketing team. After he arrived back in New Zealand in early 2004 he called me up and basically said, ‘Well, I’m back, when do we start working for Telecom?’
I had to choose between Saatchi & Saatchi and Kevin Roberts, their global head who I’d first met when he became worldwide CEO of Saatchi a couple of years earlier, and who I had found to be one of the smartest and most visionary people I’d ever dealt with, and James and a small boutique agency. I backed Kevin and chose to stay with Saatchi. After what had been a bit of a dry patch, Kevin hired Andrew Stone to head the Saatchi New Zealand business, and Saatchi went on to make some great ads for Telecom. Ironically, Assignment went on to pick up the TelstraClear advertising account.
After a difficult second quarter at the end of 2002, the third quarter (the first calendar quarter of 2003) was strong, and we reported earnings of just under $200 million. This was 11 per cent up on normalised earnings for the same period the previous year and beat the market’s profit expectations. Our focus on cutting debt and carefully managing capital spending to boost our cashflows won friends in the financial community, and Telecom’s share price tracked steadily upwards during the rest of 2003. And sure enough, the media commentary about my performance became much more positive too. I breathed a huge sigh of relief and started to relax a bit.
One of the more enjoyable things I got to do in 2003 was take up the invitation to attend the Bill Gates International CEO Summit in Seattle in June that year. I was invited regularly in my years as CEO but I was able to go only twice. That year we were able to try out the first generation of tablet PCs, which was great fun.
It was an amazing experience to go to these summits but, not surprisingly, both times I attended there were only a few women. It was there that I met Carly Fiorina, at that stage CEO of Hewlett Packard; Meg Whitman, then CEO of eBay; and Carol Bartz, then CEO of Autodesk and now CEO of Yahoo!. And, of course, I met many CEOs who I’d only previously read about. Warren Buffett proved as entertaining and wise in person as I’d anticipated, and all the CEO panel sessions were very interesting. I was asked to join Bill Gates, Warren Buffett and several of the CEOs in a press conference at the event, which I was happy to do.
I had met Bill in my first week as CEO of Telecom, on a trip with the board to visit Microsoft and other tech companies in the United States. Bill in person is exactly as you would imagine him to be based on the Bill the world sees in virtual mode — intense, with intelligence to burn, and very action-oriented. His home, which he shares with his wife Melinda and family, was large, but it was tasteful and very much a home, not a showpiece. But of course not everybody has security guards in their garden!
For me the most remarkable features of the house were the dining room, where 100 CEOs comfortably had dinner together, and the screen in the dining room which could flick backwards and forwards from exactly replicating the view outside the house to any other image that we wanted to see. But the most amazing room, or should I say series of rooms, was the library. Looking at the originals of some of the great documents of American history and historic letters that I had never previously seen was fantastic, and I could easily have spent weeks in there.
As an aside, I have also met ‘the other Bill’, both times in New Zealand. I twice had one-on-one sessions with Bill Clinton, the first time when he was still US President, in September 1999, when he visited New Zealand for APEC, and the second time post-presidency, when he visited Auckland on his world speaking tour in 2006. It’s true what they say about his charisma: for the nanoseconds that he is talking to you and focused on you, you feel completely captivated — and then he’s gone and on to the next person. Both times he spoke well and I felt his speech in 2006 particularly showed a deep understanding of other countries’ challenges.
My other connection with Bill Clinton was that I was with Peri Drysdale in Australia in 2002 when she was rung and told that Bill had walked into one of her stores and purchased a garment. To say she was thrilled was an understatement! This was a great reward for Peri’s hard efforts over many years running Snowy Peak and Untouched World, promoting the best of New Zealand’s natural merino wool and possum products and a range of clothing and lifestyle items.
Meanwhile, back at home TelstraClear was adopting an increasingly aggressive stance. The price set by the Telecommunications Commissioner for interconnection was a much better deal for TelstraClear than anyone was expecting. Nevertheless, Rosemary Howard thought the deal wasn’t good enough and appealed against it. In June, at a telecommunications summit in Auckland, I challenged her to drop Telstra’s appeals to the Commerce Commission and in return we would abandon the counter appeals which we had lodged to protect our interests. I pointed out that the whole thing was rather counterproductive but TelstraClear was not prepared to negotiate. There was much mirth among a few journalists when Rosemary and I sat together on the panel discussion at that event as we were dressed almost identically in dark pin-striped suits and pearl necklaces.
In New Zealand we carried on down the path of outsourcing deals and improving efficiency in the company. We outsourced the supply and management of our new 027 mobile network to Lucent, who’d built the network 18 months previously. And we outsourced the management of the New Zealand fixed line network to Alcatel.
Telecom had always had strong support from investors in the United States but very little support in Australia. Mark Flesher, general manager – investor relations, Marko Bogoievski and I had worked hard at trying to get Australian fund managers interested in buying the stock, and in the 12 months to the middle of 2003 the proportion of stock owned by Australian institutions more than doubled. By April 2003 Australian institutions owned 16 per cent of Telecom, up from 7 per cent in April 2002. The growing presence of Australian companies on Telecom New Zealand’s share register was in many cases at the expense of Telstra, as during the year our share price had climbed while Telstra’s had fallen.
The good financial result for the three months to March 2003 was followed up by another good result for the three months to the end of June, where we saw both a recovery in revenue growth and the benefits of cutting costs. Australia was now comfortably cashflow positive, contributing $92 million cash to the group result, compared with negative $28 million the previous year.
On the back of a good result, most analysts increased their profit forecasts for the following year. That’s the trouble when you deliver good results — the bar gets raised ever higher.
My biggest worry at that time in the New Zealand business was mobile. Although we had delivered the new 027 network on time and on budget, we were still clearly underperforming Vodafone and, in particular, we were weak in the youth market. Telecom was simply not as ‘cool’ as Vodafone. When I saw that Greg Muir was leaving as the CEO of The Warehouse I called him immediately to see if I could hire him on a short-term contract to help us focus on marketing and merchandising mobile at the retail level. Simon Moutter and I had already convinced one of our most talented general managers, Kevin Kenrick, to take on the challenge of improving mobile performance, and he worked with Greg on developing an action plan that dramatically changed the game.
One of the things we’d been working on for some time was trying to accelerate the shift of customers from our old 025 network onto 027. The mobile team came up with the brainwave of offering unlimited texting for $10 per month and we launched $10 a month ‘all you can text’ in August 2003.
At the time we launched $10 texting, 63 per cent of our 027 customers were texters. On average they spent $8 per month on text messages. But among those who texted, 20 per cent sent more than two texts per day, and of course there was a group of very heavy users sending as many 3000 text messages per month, so they stood to save heaps. Given that many of the heavy texters were teenagers, the combination of $10 texting and our souped-up advertising turned Telecom Mobile from their parents’ mobile company into a real contender for their business. Vodafone didn’t match our offering, instead responding with an essentially two-for-one offer, i.e. buy $40 of prepaid air time and we will double it.
Our initiative proved to be a real winner with customers and completely changed the game in mobile. Indeed, Telecom’s 027 service was voted Mobile Service of the Year at the TUANZ (Telecommunications Users Association of New Zealand) Awards for the second year running.
We had worked hard all year, with regular performance reviews of every part of the business, and we were growing earnings, but it was really difficult to address the really big, fundamental issues about telecommunications that were the same around the world. Technology was always driving down the price by providing customers with cheaper alternatives, so it was very hard to grow top-line revenues. Nevertheless, the market responded to the immediate improvement in financial results, and the Australian media ran headlines like ‘Telecom New Zealand in sparkling form’16.
On September 18, 2003 the Telecommunications Commissioner released his draft decision on unbundling of the local loop, i.e. that rival telcos should be able to put their equipment into Telecom exchanges and plug into our network, thereby avoiding having to invest in core network themselves. Rosemary Howard was very upbeat about this and actually called it an exciting decision. Me, I thought that most Kiwis weren’t particularly interested in unbundling per se, although they did want to see competitors given a fair go. The arguments in favour of unbundling were fairly easy to mount and the ones against more complex, but whichever way we looked at it, we knew it was going to be bad news for us. I was very determined to try and reverse the draft decision although very few people at Telecom believed this would be possible.
Also about this time, the first commentary started to appear in the media about New Zealand being well down the developed country rankings for broadband and linking the slow uptake to Telecom. Throughout 2003 I had many meetings with a variety of cabinet ministers, including the Minister of Communications, Paul Swain, who was a decent bloke and pretty straightforward to deal with. The meetings were about different topics, from the possibility of jamming cellphone coverage in prisons through how to improve broadband penetration in rural New Zealand. Interestingly, at none of these meetings did any cabinet minister ever say to me, ‘We think you, Telecom, should be doing more about broadband’.
In 2003 I’d been invited to join the government’s Growth and Innovation Advisory Board, which again led to lots of interaction with cabinet ministers. Once more, there was plenty of opportunity to say to me either formally or informally, ‘Hey, we think you should be doing more in this area’. At no stage did this happen. Later it was repeated ad nauseam that the government had warned Telecom many times about broadband. In fact, I’m not sure that anyone from the government ever claimed they had — it just seemed to be asserted, then repeated and accepted as a fact.
One of the positive things we were doing with broadband was the introduction of Coronet, a video-conferencing network between secondary schools. In September I went to Te Aroha College in the Waikato for a demonstration of the system, with Helen Clark. (This was the second time we had done a schools broadband visit together; we had earlier gone down to Dunedin, where ex-MP Clive Mathewson had been an early mover behind getting Otago schools hooked up to broadband.) There, schools were using broadband to offer a greater range of subjects to students than was otherwise possible at smaller schools outside the bigger cities.
In early September 2003 we had a fantastic leadership day for the top 100 leaders and influencers in the company. My direct reports recommended who in their team should attend and I made the final call. It was a chance for me to openly discuss what I thought I had done well and what mistakes I had made in the previous few years. People weren’t used to a chief executive who admitted they were fallible and it sent a strong message about the candour I expected from everyone.
I spoke in Hamilton at a business luncheon in late 2003 and a reporter who interviewed me noted that I was walking around carrying a tattered pair of comfortable shoes in my briefcase, which I regularly did because I can’t walk far in high heels without getting a sore back and besides, you can’t move fast enough in them! She thought it said something about how comfortable I was in my job, which was true, although I actually carried all sorts of things round in my briefcase, including a random assortment of food. Philip King, at the time investor relations manager, remembers driving around London with me pulling marmalade sandwiches out of my briefcase between meetings!