Telecom New Zealand's recently appointed chief executive Paul Reynolds has conceded the company's market position in Australia isn't sustainable in the long term and says competitive pressures are placing "extreme margin pressure" on its corporate IT division, Gen-i. However, Mr Reynolds told an ABN Amro-hosted presentation to institutional investors in Sydney last week that Telecom NZ would not make strategic decisions about whether to sell or develop parts of its Australian business until next year.
The company needed to focus on its NZ business first.
Competition in the large corporate sector has forced Telecom NZ to drop prices to retain customers.
Telecom NZ bought PowerTel for $NZ404 million ($346 million) last May, after failing to find a buyer for loss-making AAPT, which it bought in 1999.
There has been speculation AAPT's main high-value corporate account, with Commonwealth Bank of Australia, isn't profitable and AAPT is struggling to compete against heavyweights Telstra Corp and Singapore Telecommunications-backed Optus.
Auckland-based ABN Amro analyst Geoff Zame said Telecom NZ needed to make significant decisions about whether to consolidate the business in Australia, or withdraw completely.
Mr Zame said major injections of capital were required to keep high-value corporate accounts afloat.
Former Telecom NZ chief financial officer Marko Bogoievski had expected the PowerTel acquisition to pay returns immediately but Mr Zame said it hadn't delivered any dividends.
"They always talked about earning the right to grow, and that the market would sanction further acquisitions until there was some demonstrable progress with PowerTel," Mr Zame said.
PowerTel has haemorrhaged customers since it merged with AAPT last year and shifted customers on to a new internet and phone system.
Fixed-line customer numbers plunged 15.4 per cent to 347,000 in the six months ended December 31.
Telecom NZ's overall Australian operation recorded an Ebitda loss of $22 million in the December half year, compared with $NZ19 million for the same time the year before.
Independent Financial Review (NZ)
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.