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New ring tones

New ring tones

A broad change for Telecom NZ’s ailing AAPT

AAPT, the troubled Australian arm of Telecom NZ, is set to turn the corner this month as it moves into cash flow-positive territory for the first time. Chief executive Paul Broad said operating costs had come down and the culture of the company was changing to reflect its true position in the Australian market.

"I think we are reaching that turnaround point now," he said "Cash is what makes the business tick, especially in telco land, and we're there now."

AAPT recorded a $26 million loss in the year to June 30, but this was a 65 per cent improvement on its numbers in 2006 TO 2007.

Broad, who was previously the chief executive of PowerTel, which AAPT bought in May, said he was hoping to effect significant cultural change to drive profitability at Telecom NZ's perennial loss maker.

"It's a work in progress, that's for sure. The problem is that there's not enough of a challenger mentality here," he said. "In New Zealand it's a monopoly, but it can't act or think like that over here."

Broad said the company was targeting operating costs to run at between 25 per cent and 26 per cent of revenue, which would be an improvement on the 30-plus per cent figures it ran up previously. In the year to June 30, operating expenses for AAPT rose 3.1 per cent to $NZ1.28 billion ($1.09 billion), while operating revenues grew only 0.3 per cent.

Broad said AAPT had rationalised the structure of its consumer offerings in broadband to ensure it didn't haemorrhage profits.

"We don't want to give away value here," he said. "No more free modems unless customers sign up for two years. And if they don't sign up for two years, then the modem doesn't come for free."

The fiercely competitive broadband space has been a battleground among AAPT's rivals such as Telstra and Optus, but Mr Broad said his company should be in a position to benefit from the greater uptake of the technology because it was now able to offer customers high-speed internet products, of which ADSL2+ is one.

His comments precede Telecom NZ's annual meeting on Thursday in Dunedin. A major item for shareholders to consider will be the salary package of its newly arrived chief executive, Paul Reynolds, whose starting base salary of $NZ1.75 million tops that of his long-serving predecessor Theresa Gattung.

Reynolds's appointment dashed all hopes that chief financial officer Marko Bogoievski would rise to the top, and his impending departure is one risk in investing in the company, analysts say.

"The key downside risk is revenue uncertainty due to recent unbundled local loop pricing and management changes," Deutsche Bank analyst Sameer Chopra said.

Broad said he was "gutted" when Bogoievski decided to quit.

Key points:

• AAPT has merged with PowerTel, and Paul Broad is the new CEO.

• His priority is to instil a 'challenger mentality' at the NZ-owned telco.

• AAPT lost $26m last financial year.

Australian Financial Review

© Fairfax Business Media

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