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The merger maven

The merger maven

For Jenny Mortimer, the numerous mergers that have resulted in New Zealand’s TelstraSaturn have been a rollercoaster ride. Rob Hosking reports

Go back six years. New Zealand’s telecommunications market was fragmented. On the one side, there was Telecom, the wired behemoth that everyone grizzled about. On the other, a group of small insurgent telecommunications firms, of varying sizes and types, and committed to various parts of the markets.

Leading the pack was Clear Communications -- the first insurgent in New Zealand, and whose original name, The Alternative Telecommunications Company, perfectly set out where it was positioning itself. Clear went for the residential tolls market initially, but when margins in that market started to slide it took more of a n enthusiastic bid for business customers.

Two other entrants had recently joined the market – the fledgling cable television company, Kiwi Cable, had just moved from its original base on the Kapiti Coast to Petone, and was re-branding itself as Saturn Communications, while rolling out fibre-optic cable around Wellington’s suburbs.

The Australian telecommunications giant Telstra, meanwhile, had just set up a New Zealand operation and was aggressively targeting business customers, particularly those with a trans-Tasman focus.

Out on the mobile front, BellSouth had taken Telecom on head-one, but had hit something of a plateau.

The ongoing fireworks on the regulatory front were still the focus of much of the attention within the industry, with the then Minister for Communications Maurice Williamson saying that if they didn’t sort out their differences he would be forced to regulate the market. Maybe. One day.

Clear Communications’ then chief executive, Andrew Makin, looking out from the company’s Wellington branch office across the harbour to Saturn’s new premises, mused that it was as though a bunch of dwarfs were taking on the giant of Telecom.

If the dwarfs joined up and sort of stood on each other’s shoulders, he wondered, might not the battle with Telecom be more of an equal struggle?

Makin – whose early death a couple of years later was mourned by many in the industry – was on to something, although it was to be some time before his vision became reality.

First Telstra New Zealand and Saturn linked up, early in 2000. Then a year ago the new firm of TelstraSaturn merged with Clear, becoming TelstraClear.

The dwarfs, combined, now look like a strong challenger. Putting the companies’ operations together is no straightforward task.

Responsibility for sticking the very different systems of all those companies together has fallen on the shoulders of Jenny Mortimer, who joined Saturn Communications in 1996, just as the cable roll out in Wellington was really getting going.

Mortimer was just completing the final stages of integrating the systems following the Telstra/Saturn merger when the Clear takeover took place.

That first merger had been implemented more slowly, she says. It had accompanied two lower profile but nonetheless significant takeovers – just prior to the Telstra/Saturn merger, Telstra had bought Wellington-based internet wholesaler Netlink, and Saturn had taken over internet service provider Paradise.

But the merger of systems was able to be carried out at a more studied pace than the latest one, she says.

And there was less angst involved.

“Telstra and Saturn were in two different businesses. Saturn was primarily in the residential business – cable television, telephony and internet. Telstra was wholly in the business market. There were different cultures in the companies, different systems, and bringing the two together was less of a shock to the organisation than the more recent merger.

“There was a lot more overlap in the Telstra Clear merger, and that brought its own issues.”

And the fact that the earlier merger had been between companies servicing two different markets meant the integration was able to be carried out more slowly – there were no major rationalisations required.

“This time around, there were significant overlaps between the two. We had to leverage the strengths of the two companies, but also rationalise those overlaps.

“That means you are losing people. And it’s never easy.”

But the obvious overlaps meant carrying out that rationalisation quickly, rather than having people hanging around wondering who would get the chop. Having said that,. Says Mortimer, “probably in the systems area I downsized less than other parts of the new company”

However, the rationalisation part is past. Mortimer has had to maintain a sizeable IS department because the second phase of the integration of the two firms’ systems will still take another six to nine months to complete.

“The networking and technology area, and the migration of customers’ records on to the TelstraSaturn system, is now a good two thirds of the way through.

“We’ve done the corporate systems, like SAP for the financials and Peoplesoft for the payroll, and we’ve got the LAN/WAN integration done.

“And we’re now in the final throes of rolling out a single desktop -- we’ve done the Auckland and Wellington operations and we’re now just doing the Christchurch people.”

Mortimer’s department has put in a merged call centre system , combined with customer relationship management system Clarify, at the front end of that. “And we’ve developed an integrated reporting system at the back end. In the middle though there is still multiple systems.”

The aim of this approach is to minimise the hassle factor for TelstraClear’s staff – and, down the track , the customers. The company’s approach, says Mortimer, has been to “buffer the business” from the impact of the integration. The idea has been to get the front-line staff on a single system, so it doesn’t matter if a customer who rings was with Clear or Telstra prior to the merger. That reduces the confusion factor for the frontline staff, and also the time the customer has to spend on the phone with those staff.

And at the back end, administrative staff and managers do not nee dot concern themselves with different information from different components of the company – there is an integrated reporting system.

That “buffers” non-IS staff from the complexity of the systems in the middle of all that. “There are still multiple systems in place for customer order management and billing, network records and activation processes. This is the guts of the telecommunications business, and it is still in the process of integration.”

Also in the middle systems is the merged firms’ complex order entry and billing processes. That includes customer records, billing records, and so forth. “We’re taking our time over this one,” says Mortimer. “We want to make sure we don’t’ impact the customers, and that we get it right.”

The migration is from the ex-Clear proprietary system across to TelstraSaturn’s largely packaged systems. “We’re about two thirds of the way through that at the moment. And we’re rolling out Sell-to-Deliver – which links the processing and activate an order.”

Part of that integration also involves integration of products. There is a huge range of products across the two companies, says Mortimer, and since, in the telecommunications context, products often are in effect IT systems this has a major impact on the firm’s IS department. “Our activations and connections group needs to be able take order and provisions services, data services, business internet services, and hosting, as well as the residential services and cable television. It’s all a bit technical, but it’s a hard one. You are not just selling the customer a black box on the shelf, you are connecting a customer to the network and making sure they have the services they want and the support they want and the applications they want running. It’s a fairly complex operation.” There is also, internally, the integration of the firms’ network assets spread around the country, as well as recording them together on the Smallworld geographical information system.

And that is all alongside what Mortimer calls “the big hairy mother of all integrations” -- the customer order and billing systems. That is taking the longest of all, says Mortimer.

The various firms brought some useful strengths to the combined operations, she says. “There were also some good synergies. Clear was, I think, a more mature company. It had developed good processes, good governance, and a good administrative capability. Clear also had an excellent -- and very experienced -- sales capability. TelstraSaturn was still a newer company. There was definitely something of a start up culture, but it had the good technology – very strong networks, including the new IP network, plus the undersea cable.”

In an echo of the Andrew Makin thesis, Mortimer says that the combined unit is much stronger than the sum of the separate firms. “It’s a lot easier to be a single company as a major challenger to Telecom than two separate companies. It’s definitely working for the companies concerned, and it’s good for the telecommunications market, and the customer, overall. It’s not such a good thing for Telecom, but, well, my heart bleeds.”

That technological strength is even more important to a company like TelstraClear than it is for Telecom. While that is not to minimise IT’s importance to the incumbent telco, TelstraClear’s marketing focus makes it even more imperative that the systems side of the operation, and the final products on offer, are up to the mark.

Challenger telecommunications firms typically attract the more techno-savvy customers. They are the ones that know something different is on offer, and they tend to seek it out.

TelstraClear chief executive Rosemary Howard cites this aspect as one of key areas the company is focusing on – attracting the new adopters and the more progressive IT users .And, more importantly, keeping them.

That puts the onus back on Mortimer’s department to come up with those sorts of products and solutions. And all the while deal with the ongoing issues around the merger.

“The merger of course meant we had two suites of systems to support and a huge amount of work integrating those systems. In fact we’ve now got six to nine months to go before we complete the complex customer systems operation and for that we are still maintaining quite a large IS Department.

One other thing to bear in mind is that when this latest integration began, Mortimer’s staff were still completing the final parts of the integration and migration of customer records between Telstra and Saturn – the last merger.

The merger with Clear was announced in December, and the work began pretty much straight away. The final part of the Telstra/Saturn merger was to be completed in January.

“Ideally, we would have liked to have completed that earlier merger several months earlier, but it did take longer than planned. And of course it meant that at the end of last year we were planning the further integration of systems at the same as we were still completing the previous one. And I’ve got to say people are bearing up rather well – they have taken the bull by the horns and made it all work. ”

Mortimer has to keep an eye on the outside decisions that have an impact on her job. The company has some network assets in Auckland, from both the Telstra and Clear companies, but is hoping to avoid having to roll out a widespread cable network of its own, as it has done in Wellington.

Some estimates put the cost of that at $2 billion, and CEO Rosemary Howard has talked of the need for New Zealand to avoid doing what happened in Australia – having the two telecommunications firms, Telstra and Optus, putting expensive fibre-optic cable down the same streets.

That means the recent Commerce Commission decision on wholesale pricing – whereby TelstraClear pays Telecom for use of its cable – has a big impact on the company’s business plans – and it means Mortimer’s people will have responsibility for linking in to that network.

TelstraClear already has close links with another company’s networks – those of mobile phone operator Vodafone. Until now TelstraClear – both as a combined company and, previously, as two separate entities – was in effect a reseller of Vodafone’s mobile offering.

TelstraClear is hoping to deepen that relationship, and , if successful, that will mean further work for Mortimer’s team. Negotiations are currently under way between the two companies, with TelstraClear having the aim, says Howard, of becoming a “virtual network operator”. That means the company can put its own features, offerings, and tie-ins to other services, on to mobile phones which run on the Vodafone network. To do that, TelstraClear needs control of the intelligent layer of the mobile network, and this is what the current talks are about.

It gives TelstraClear better margins than it does just being a reseller – and of course, any successful tie-in will have implications for how Mortimer’s team manage the company’s systems. “That Vodafone relationship is a pretty important one to us,” says Mortimer. “One of the drivers since the merger has been to achieve all the operational efficiencies possible and not only integrate but also automate processes. That is not just for our own network and systems but, beyond that, for any of our partners and suppliers. So there’s a drive for a closer degree of automation with Vodafone. That’s on the technology and product front. There’s the chance of significantly better offerings by aligning what we do with what they do.”

It also ties in with the overall positioning of the company as being the telecommunications firm with offerings for progressive users, be they at home or work. While the overall telecommunications industry has not had a good couple of years. The pessimism within the industry has been immensely corrosive – as Howard points out, this is a sector which has destroyed around $US3 trillion in shareholder value over the past 24 months.

It’s the sort of record that tends to make shareholders jittery about rolling out new networks, particularly in small countries at the bottom of the globe.

TelstraClear has one advantage – Telstra, which owns nearly 60% of the company, has avoided the worst of the tech-wreck, and has, in fact, one of the most robust balance sheets of any major telecommunications firm anywhere. That has meant the local operation has had the confidence to go ahead with its expansion plans. But while those plans are unfolding, the existing operation also has to be maintained.

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