I can remember going for a walk around Oriental Bay, Wellington, with Philip King, general manager – corporate affairs, in May 2004, shortly after the government’s decision came out and we were seen to have ‘won’ the unbundling debate. Philip said to me, ‘You know, TG [what most of my team called me], this won’t be the end of it. It’ll come around again.’ I said, ‘Mmm, I’m not sure. I don’t think the desire to regulate telecommunications will go away but I think it will come back in a different form.’ Neither of us was to know that we were both right. The unbundling issue did come back, in relatively short order and with another, much worse, form of intervention from an incumbent telco’s perspective — operational separation.
In hindsight, we won the battle but lost the war. Winning the unbundling debate and being awarded so many Probe regions only served to harden the perception that there was little real choice in the market. Indeed, inside observers commented to me later that many in the Labour Cabinet the day the decision was made on unbundling saw it as unfinished business to be dealt with again later.
However, the media stories in both Australia (‘Telecom New Zealand reaps rewards of staying the course’) and New Zealand (‘Telecom basks in rosy ’low’20) were pretty positive, and by August our share price had broken through $6. Commentators were saying that we looked to have both TelstraClear and the regulators where we wanted them (‘Kiwi telco is pick of the bunch’21). Our full-year profit announced in August of that year was $754 million, a 6.3 per cent rise in earnings on the previous year, and our shares hit a three-year high of $6.27.
Apparently I was effervescent in announcing the full-year result and all the photos show me happy and smiling. It was relief! To the 99.9 per cent of the population who have never been in that situation, the pressure of reporting on your performance to the market every 12 weeks is gruelling, so it’s always good to have some positive news to share.
If it seems like I’m going from talking about one profit result to the next, that’s because that’s how it often felt. Over time we got faster and faster at compiling the results for each quarter and producing them for the market. Nevertheless, around the time of presenting the results or very soon after, the next month’s financials would roll in, which we would then analyse. We would then conduct performance reviews with each division, so it felt like we were never off the treadmill. I was always aware of what the analysts’ expectations were, and every good quarter meant the bar got raised even higher.
Importantly, our marketing efforts in mobile were starting to pay off and we started to capture a greater share of new mobile business growth. We announced that we would be upgrading our 027 network through a third-generation technology known as EVDO (1xRTT) later in 2004. The subsequent Telecom 3G advertising campaign won three Effies at the New Zealand Advertising and Communication Awards, including the grand award for Advertiser of the Year in 2005. I loved that campaign and felt quite moved when we first presented it to customers. It was an exciting time leading the first company to launch a 3G mobile network in New Zealand.
Another very pleasant event came in June 2004, when Simon Moutter and I hosted a dinner for people who’d worked for Telecom or its predecessors for 40 years or more. I had started this tradition a few years into my time as CEO and did it every year. There were usually somewhere between 30 and 50 people who were marking their 40-year anniversaries each year, and it was always a joy to mix with them and to celebrate past, present and future at the company.
I felt on a high with the way things were going for the business, but after nearly five years as CEO, working at a gruelling pace in a relentless environment, I started to get some physical manifestations of stress. As well as my experience of TMJ, earlier on in my career I had also suffered from back problems which were often exacerbated in times of stress. Fortunately they had been dealt with easily by an osteopath. This time the stress manifested itself in the form of skin irritations, so I started seeing an iridologist and naturopath. She told me I was dehydrated, not drinking enough water and consuming too much sugar. I tried hard to start drinking more water but I didn’t really make any effort on the sugar front. I’ve always had a very sweet tooth and while I’m very disciplined about most things in life, including exercise, I’m very undisciplined about eating.
I enjoy physical activity, and since my brush with TMJ and the pain of that in my mid-twenties, swimming every day had become non-negotiable for me. When I travelled I cared much more about the size of the swimming pool at the hotel than I did about the size of the room! I have swum first thing every morning wherever I am in the world. There would have only been a few days in the last 22 years when I’ve missed a swim: a very few times when I’ve been too sick to physically get out of bed, the period after I broke my arm in a fall from my horse and couldn’t go into the water, and occasionally when I’ve been overseas in a location more than an hour’s drive away from a swimming pool.
To help keep myself in good shape, for many years I have also had a massage most weeks, and while I was CEO most months I would have a session with a gifted healer, Meryl Yvonne. It’s hard to describe what she did – I think of it as rebalancing my energies and restoring them whenever they were depleted.
I had another scare that winter too. I’ve always loved Queenstown and this year I spent Queen’s Birthday Weekend there with my sister Angela. I’ve never been a great driver, and coming down Coronet Peak in a rental four-wheel-drive I found I was unable to stop it sliding on the icy road. I was terrified as we slid towards the edge of a cliff without any barriers. I screamed at my sister to get out as I turned the wheel into the side of the hill.
Angela managed to scramble out, though she only narrowly avoided going under the wheels, and I managed to scramble out too, into the ditch. The car continued to slide a further 50 metres down the icy mountain road and ended up nose-down in the ditch on the mountain side rather than going off the cliff. I was so shaken I could hardly speak. One minute we were sailing down the mountain– slightly too fast, obviously — and the next minute I thought my beloved sister and I were going to perish! We flagged down some skifield workers who were coming down the mountain to help get the car out of the ditch and drive it and us down the hill. As soon as we got to the bottom, my sister had the presence of mind to instruct me to immediately start driving again — she thought I would lose my nerve entirely if I didn’t ‘get back on the horse’. It was the last thing I felt like doing but it was probably a good call on her part — and, of course, a supreme act of confidence given I’d just nearly driven both of us off a cliff!
On a more positive note, by this time I’d also got into owning race horses. My friend Cindy Mitchener had hooked me up with her mate Mark Todd (voted Equestrian of the Twentieth Century by the International Equestrian Federation) when he came back to live in New Zealand and I invested in several syndicates with horses that he’d picked out. One in particular was a horse named Bramble Rose, a name John had discovered by putting my name into a website that generated my ‘hobbit name’! Bramble Rose was owned in a syndicate which, among others, included Mark himself and broadcaster Paul Holmes. She was New Zealand Filly of the Year in 2002–2003 and was very successful on the racetrack, winning the New Zealand Oaks in 2003 and finishing third in the AJC Oaks at Randwick in Sydney. Unfortunately she suffered an injury in that race and was never the same again. Eventually we sold her to a breeder in Australia who put her to the top sire of the year in Australia, Redoubt’s Choice, and she got into foal straight away.
On the back of this early success I bought more racehorses, but I was soon to discover that owning racehorses is a bit like having a venture capital portfolio. Only one in 10 is fantastic, two will be okay and the rest will be duds. It was my misfortune to discover that my first one was the star, and although I’ve owned several racehorses since I’ve never reached the giddy heights of regularly winning Group One races as I did in my first season as a racehorse owner.
By the time of the Telecom AGM in October 2004, broadband was available to 93 per cent of all customers and we were gaining a new broadband customer every seven minutes. We were doing as many broadband sales in a weekend as it had taken a month to do just a year previously, and the number of residential customers rose 65 per cent year on year to over 120,000. But as Simon Moutter noted at the Telecom quarterly profit result, broadband was not going to be cashflow positive within a two-year timeframe, let alone start making profits. We needed to spend capital to drive growth, so we increased our full-year capital expenditure forecast to $700 million.
As promised, in November we launched our 3G mobile phone network in Auckland, Wellington, Christchurch and holiday spots. We had beaten Vodafone to the punch, as they weren’t due to launch their 3G network until some time in the first half of 2005. At the same time we launched the network, the Commerce Commission issued a draft determination proposing to regulate mobile termination prices— the prices telcos charge each other for calls between networks. This was the first time the Commission had moved to regulate mobile and we had some concerns about the potential issues around this. However, the launch of 3G proved a significant step for the mass take-up of personal digital assistants (PDAs) and high-speed data cards for laptops.
In the six months to December 2004, mobile revenue growth was 15.8 per cent per annum, but most importantly and satisfyingly, for the three months to December we added a further 96,000 mobile connections, outstripping Vodafone’s growth for the same period of 74,000. It was the first time in several years that Telecom had added a lot more customers than Vodafone.
Being on CDMA technology (using EVDO) had allowed us to get to 3G faster then Vodafone, but even though at that time CDMA had 200 million users worldwide and was the standard mobile technology in the United States, GSM, which was the Vodafone standard, had 1.2 billion users worldwide. We were always challenged in terms of choice of handsets because there just weren’t as many different CDMA models being made compared to GSM-compatible ones. GSM was in the ascendancy and more handsets and services were being designed for that technology, which had been part of the success of Vodafone in New Zealand. This was particularly a problem for us because on a global basis the quantity of handsets that Telecom New Zealand was ordering was miniscule.
Our team came up with a very innovative partnership with US cellphone giant Sprint, who used a CDMA network, which meant better economies of scale, i.e. the manufacturers were making handsets for a much bigger company. We were able to piggyback on Sprint’s supplier deal simply by changing our mobile network slightly so that phones designed for its network were able to work here. It was an innovative approach to dealing to what was a perennial problem with CDMA.
In November we also launched access for competitors to the regulated Bitstream wholesale service, as previously specified by the Telecommunications Commissioner — the first piece of wholesale regulation to come into force. Broadband growth was taking off, with a record number of new residential customers in the three months to September.
All year we had signalled to the market that we needed to invest in both mobile and broadband and that’s what we were quietly doing. At that quarter’s profit result the costs associated with those investments were beginning to drag on our earnings performance. Still, it had been a very satisfying year.