AGENDA
THERESA GATTUNG
CEO, Telecom
Interviewed by SIMON DALLOW
PART 1
SIMON
She's led our biggest listed company Telecom for the past five years, Theresa Gattung's also our highest paid Chief Executive with a pay package of 2.8 million dollars in the latest financial year. This month's issue of Fortune Magazine includes her in a list of the world's most powerful business women. She's been credited with steering Telecom through a difficult period following the technology bust, profits though a back up, 754 million in the year to June but critics say Telecom is still milking its dominant market position, and Theresa Gattung joins me now.
In 2002 you adopted a back to basics strategy, slashing capital spending, focusing on high value customers, that has subsequently seen the share price climb some 20% but how has it benefited New Zealand as a whole?
THERESA
Well I guess we've moved on from that it's now 2004 and we're actually not currently in a sort of a slash mode, we're actually very much in an invest mode, we're focused on growing broad band in particular, pouring millions into that, we're spending more in capital expenditure and infrastructure in New Zealand than we ever have before, second biggest spender behind the government, so we're very much in a sort of an invest mode, we're pressing ahead into the information technology area, expanding through buying companies like Genero and Computer Land because customers want to have the choice of full service provider, they won't necessarily choose to take telecommunications and IT from the same provider but it's good to be able to offer them that choice.
SIMON
I want to pick up on a number of those points, however I want to go back to the investment, you’re talking about investment now but your record has been according to Ernie Newman from TUANZ Telecommunication Users Association he's called Telecom's investment record appalling and has said you know broad band uptake 23rd in the OECD, mobile phone costs fourth dearest in the world for medium to high volume users, fixed line competition declining. Paul Swain on Monday cited figures supporting that, you know the accusation is that you persistently under invested in New Zealand.
THERESA
That’s not the case, we've now rolled out broad band to over 90% of all New Zealanders, so over 90% of all lines are now broad band enabled, that’s right up there and we're currently in a big push.
SIMON
As far as broad band's concerned though that’s a low speed interpretation of it isn't it?
THERESA
No that’s the standard industry global speed interpretation and we're now in a big push on broad band, it's pretty hard to watch TV or pick up a newspaper and not see an ad for broad band currently, which we call Jet Stream that’s the brand name.
SIMON
But broad band there have been difficulties all the way for competitors to access your system.
THERESA
No I disagree with that as we've actually launched the latest round of broad band products we've made them available at resale at the regulated rate.
SIMON
Why has the uptake been so low then?
THERESA
Well actually OECD has commented that one of the reasons for that is free local calling, I mean one of the things that we're keen to do is try and convince the million Kiwis who are on dial up that it's worth spending about 12 bucks a month more to get on to broad band because that will be good for the country, but it's happening, there's actually a quiet revolution going on for example in education, over half of all schools are now on broad band, there are over 100 thousand children using video conferencing technology to learn. So it's happening. In the health sector tonight there's a Starship ball celebrating the launch of the tele paediatric service, that’s using broad band technology to enable sick children to come to Auckland Starship Hospital to be treated back in their local areas, so it's with us, it's real, it's happening, I mean critics are always gonna say that we're not going fast enough but we're deeply committed to this.
SIMON Specifically the critics say that because of free local calling as ensured by the Kiwi Share obligation, Kiwis will stay with that until broad band becomes more appealing in a price sense.
THERESA
Well the OECD server that you talked about that the Minister made reference to actually shows that our broad band price now currently is very competitive on OECD basis.
SIMON
So why aren’t people going for it, is the margin too great from the free calling?
THERESA
They increasingly are going for it.
SIMON
At a very low rate of uptake at the moment.
THERESA
Well no we've actually just had our best month ever and we're totally committed to getting into a quarter of a million homes by the end of next year.
SIMON
So you’re signalling a change in investment policy?
THERESA
We actually signalled that about nine months ago and we've been delivering on that since then.
SIMON
Your dividend policy returns a large portion of nett profits to shareholders, why not plough that back more.
THERESA
Well you know our biggest….
SIMON
And you've increased that proportion of nett profit that goes to shareholders.
THERESA
Actually we've gone back to what we were before, we reduced it when we bought in Australia, which was our biggest offshore investment, and in doing that we actually cut back on the amount of dividend we were paying to shareholders. We've got the Australian operation in a situation where it's cashflow positive, we've increased the dividend back up to about the levels that it used to be, at the same time we're increasing capital expenditure in New Zealand spending less offshore. So we do make target investments that support the country, for example Southern Cross network that links Australia and New Zealand to the rest of the world, you know that investment would not have been made but for us because you know we live here this is our business, we compete with companies who are in New Zealand as part of a much broader perspective. New Zealand really matters to us it is our home base.
SIMON
I think it's a bit of a misnomer to trumpet that investment though because you've inherited essentially – well Telecom has inherited a monopoly situation following privatisation and some say it's exploited that monopoly over time. You have persisted in fighting competition.
THERESA
Telecom was privatised 12 years ago, we've invested 600 million a year every year for the last decade, that’s a huge amount, nobody said we had to invest in Southern Cross network, without that we would not have had international connectivity for New Zealanders and New Zealand businesses to the rest of the world, so you know we make decisions every year that benefit the country and at the end of the day we do have to have a balance between how much cash we return to shareholders and how much we invest, but you know we have upped the rate of investment in the last couple of years.
SIMON
Paul Swain also said on Monday that we're aiming to be in the top half of the OECD on key telecommunications indicators, what assurances can you give that we will get there?
THERESA
Well of course it's not just about us, it is also government policy initiatives etc, and you talked before about the Kiwi Share, I mean that’s a policy initiative and we didn’t decide to have free local calling. At the end of the day we have committed to bringing world class technology to New Zealanders and it's in our interests to grow it's not in our interest not to do this so there's quite a reasonable alignment, I mean we want to push things like broad band and mobile penetration that’s good for us, so at the end of the day we are quite conscious of the need to – for Kiwis to be able to see that we are doing a good job so being held to the top half of the OECD I mean that’s a reasonable benchmark of performance.
SIMON
What sort of time frame do you think we've got to get to the top half to the OECD?
THERESA
Well in many ways we're already there and you know I often think…
SIMON
But the statistics don’t show that.
THERESA
No they do.
SIMON
When will the statistics show that we are in the top half?
THERESA
No, the most recent OECD stuff showed that in the residential market for example in many areas we're already there.
SIMON
In the residential market for …
THERESA
For residential services. Now Kiwis have this cringe factor that we always assume it's better offshore. Every technology that exists in telco world today whether it's mobile or fixed is either in New Zealand or it's gonna be here very shortly. There are not a whole lot of new areas that people have access to overseas that either aren’t in New Zealand or aren’t gonna be here very soon.
SIMON
What's your attitude – just coming back to the Kiwi Share, what's your attitude to the Kiwi Share, I mean I know you have to deal with it but do you think it inhibits growth?
THERESA
No, I actually think it's probably inhibited competition a bit because it's quite hard to compete with free right, so it makes the business case for anyone else particularly going outside the main centres of New Zealand look pretty tough. So we live it we don’t spend any time fighting it and I'm not sure the government, any government would change it because it's sort of become, it's part of the egalitarian New Zealand tradition and yeah some things about it are pretty standard all around the world, governments tend to actually have service quality standards you know that the main telco signs up for and have a contribution from that for the rest of the industry, so parts of it are pretty common in telco policy world wide but yes I think it has inhibited growth of move to broad band, it's probably inhibited competition.
PART 2
SIMON
Welcome back here with Agenda and we're talking with Telecom Chief Executive Theresa Gattung. As head of our largest listed company what role do you believe Telecom plays in New Zealand business and what role should it play?
THERESA
Well we do play a huge role, obviously we pay a huge amount of tax, we hire a lot of people, we train a lot of people in a wide set of skills, and we contribute to the community through our sponsorship programmes, our supportive education sector and the 600 million we spend in infrastructure a year, so we're a big player and we take that role really seriously.
SIMON
Do you believe that’s enough?
THERESA
We're always looking at you know how we can contribute more, we have recently upped our supportive of education sector, we've been very active working with health, education rural in terms of how do we use broad band as an enabling technology and how do we work in terms of shaping the new applications that are gonna drive GDP growth and we all get a buzz out of that, I mean that’s partly – that’s why we choose to work for a company based in New Zealand.
SIMON
So you see your obligation as being part of the greater New Zealand role as opposed to simply a service to shareholders?
THERESA
Yes, obviously because we are based in this country.
SIMON
What do you think are the key issues facing business in New Zealand at the moment?
THERESA
Well you know right now one of the key issues, I mean it's fantastic that unemployment is so low that we're so close to full employment that it's actually really hard to you know make sure, particularly in some provincial centres that we can actually get all the staff that we need.
SIMON
Labour market's too tight can't get a skill base?
THERESA
Well we're growing you see, we're growing our revenues, we're investing, so we're hiring people and yeah it's quite a tight labour market.
SIMON
Is the highly prescriptive legislation that we have the Employment Relations Act, the Resource Management Act, is that inhibiting growth?
THERESA
Look I think it is an issue and the government's doing their best to deal with the RMA, you know telecommunications is all about infrastructure and services and there's some big infrastructure roll outs ourselves and our competitors that they're in progress now through next year and so issues like how much do local communities determine, you know what happens versus the national policy interests, you know those are really quite tough calls for a country and that impacts on us directly, yeah so that’s an issue.
SIMON
So would your recommendation be that some of that legislation be toned down?
THERESA
Well I think the government is trying to grapple with how can they actually get a bit of consistency with so many different regional local councils and trying to make sure that things that are for the good of the country such as us running in a 3G mobile network don’t get unnecessarily delayed because of there's different interpretations in different areas.
SIMON
By almost any indicator that you look out Australia is out performing New Zealand, why do you think that is?
THERESA
Well if you look over the last ten years that’s true, although over the last couple of years New Zealand has been catching up a bit, we've had a really good couple of years in relation to Australia and I think that’s one of the reasons why Australian companies and Australian corporates possibly have become more interested in New Zealand in the last couple of years, we're the sort of low risk four million and growing community you know quite close to their shores.
SIMON
Profitability just next door.
THERESA
Yes, the trend of New Zealand Australian business coming together is inexorable, I mean the policy initiative in terms of thinking about how we shape the policy framework is pretty important because in fact business is already voting with its feet. Now five years ago it used to be just the large corporates that were operating trans Tasman but as I got about now meeting customers it's right through the business community right into middle business, so seamless service for customers is obviously a customer issue for us and increasingly New Zealand is figuring out how do we make this win win, how do we have an agenda that actually does reduce transaction costs for business, you know issue a prospectus and it can be recognised in both countries you don’t have different sets of rules, those things are all good but we have to make sure that it is win win because the Australians will be looking after their interests so we have to make sure that we're in a mutual conversation.
SIMON
So you’re saying you'd like to see a single regulatory regime?
THERESA
No not necessarily, I think that our competition law is pretty similar between the two countries but if you just look at the latest Air New Zealand Qantas decision you'll see that regulators in courts sometimes do make different calls, looking at things from a different perspective.
SIMON
How much does New Zealand need Australia?
THERESA
New Zealand does need Australia.
SIMON
Do they need us?
THERESA
Yeah they do need us actually, and I think they're probably waking up to that yeah.
SIMON
You see them, and I'm quoting directly here because we loved this in the office, we think they are our friendly cousins and they think we are their – and I'm quoting directly – munty next door neighbours.
THERESA
That’s not quite right I said munted actually.
SIMON
Munted next door neighbours, sorry. For the benefit of you what's the difference between munty and munted. Are trans Tasman business attitudes that different?
THERESA
Look Kiwis are – I mean I've chosen to live in New Zealand, I've had lots of opportunities to live offshore, I've chosen to live here, I'm a really proud Kiwi and New Zealand's a wonderful place in very many ways.
SIMON
But, there's a but coming.
THERESA
There's a but coming, the egalitarianism the sense that women can achieve all those things are fantastic and the but is that the rest of the world doesn’t play by those rules, so it's not that Australia is rough and tough and that that’s bad an that’s unfair, that’s how Americans are, you know that’s how the rest of the world is and so what I was really doing was a wake up call to say let's just acknowledge that there are differences and of course because they look like us and sound pretty much like us we think they're the same whereas if you go off to Asia you know that it's gonna be different, so that was really what that was about.
SIMON
So we've got too much of a sense of third play and we need to be harder in the pursuit of the win.
THERESA
If you are going to be dealing in an offshore context and not everybody chooses to I mean only four percent of New Zealand businesses export, now for the good of the nation we need to have a greater proportion of our companies exporting than that and if you’re gonna export you’re gonna interact with the rest of the world you do need to understand the rules that they play the game by.
SIMON
But they don’t play by a consistent set of rules either do they?
THERESA
No that’s true actually there are differences with different cultures, that’s definitely true, but the New Zealand sense of …
SIMON
But I guess trans Tasman though we're talking specifically and they take a harder approach to business than we do.
THERESA
They're a harder country, you know I love sport, I've watched just about every Bledisloe Cup the last few years there's been a game, and when you watch an Aussie sports team play they never choke at the last minute they go right to the end and that is a different psychology, you know the Kiwi egalitarianism sometimes is a softness that doesn’t work in sport and doesn’t work in business.
SIMON
John Howard of course was returned at the weekend and his coalition now makes it almost inevitable it seems that the government's 51% share in Telstra will be sold, what effect will a privatised Telstra have do you think?
THERESA
Well privatisation makes a lot of sense, I mean it's pretty hard to argue why the government should actually own a telco, it's in deep conflict with their role as a shareholder and their role as an arbiter in terms of having a regime, so we would support the privatisation of Telstra provided the framework that that was within actually allowed for timely resolution of disputes. The Australian situation compared to New Zealand is very complex there are more layers of appeal, things take a lot longer so you know we would be very keen to see that the framework that that was done in was actually a framework that allowed us to make a quid in Aus but essentially privatisation of Telstra is long overdue.
SIMON
What effect will it have on Telecom?
THERESA
Well in the short term you might see a whole lot of brokers or buyer son Telstra.
SIMON
Longer term?
THERESA
Longer term, who can say, but ultimately I think the structure of the industry will be best served if the government isn't actually trying to be poacher and gamekeeper.
SIMON
Let's have a look at your other interests in Australia or specific interests in Australia, AAPT finally turning a profit but been disastrous up until now, what's the long term strategy there are you gonna hold on to it?
THERESA
Well look we went into Australia because we saw this trend that has happened and I think we were right in that, whether we like it or not New Zealand's increasingly becoming a branch office of Australia and so the need to actually have a business in Australia, infrastructure in Australia and provide trans Tasman service is even more important today than it was a few years ago. Yes we're very happy with progress that business has been cash positive now for quite some time, we're investing in it and we're growing, so the only thing that was a little unfortunate was the time of going in, the strategy of going in was right and you know we're there, we're not about to waka back over this side of the Tasman.
SIMON
You of course have been in the news recently over salary, is 54 thousand dollars a week justifiable?
THERESA
Well it is a lot of money but Telecom New Zealand's the 15th biggest company in Australasia and that’s the market rate for CEOs.
SIMON
Some say though of course Brian Gaynor wrote a column in the Herald saying that it was out of proportion, Rod Dean justified it comparing it to other businesses but it wasn’t compared to Telstra your counterpart at Telstra earns about the same amount of money for a much larger company and of course the chairman of Telstra is paid around a little over half of what Ron Dean receives.
THERESA
Well all management salaries at Telecom are performance related and we've had a much better year, a much better couple of years than Telstra.
SIMON
Are you in this for the long haul?
THERESA
Yes definitely, this is five years, I think when I took the job I said you know five to seven years it's a bit like getting older though as you get to the five year mark you say okay right this still feels fresh and new so.
SIMON
Where do you see yourself in another five?
THERESA
I don’t know but I have no intention to do anything else, I'm still enjoying myself.
SIMON
Staying in New Zealand regardless? You mentioned your pride in New Zealand, you've had the opportunity to go offshore.
THERESA
I have had many opportunities, I really love this country and look I'll always be a New Zealander, I can't be sure that I'll always live here but I have so far for 42 years I've chosen to.
SIMON
Chief Executive of Telecom New Zealand, Theresa Gattung, thank you very much for appearing on Agenda today.
This transcript is copyright to Front Page Ltd but may be used provided acknowledgement is given to Agenda and TVOne.This is a rush transcript and may contain errors. It should be checked against a tape of the programme to ensure complete accuracy.
AGENDA
MIKE WILLIAMS
President, Labour Party
Interviewed by SIMON DALLOW
SIMON
Last Saturday the Australian Labour Party lost what many regarded as an election it was destined to win. Labour Party President Mike Williams was there and he returned to New Zealand to find his own party with its own problems with the news that Cabinet Minister John Tamihere is having to stand down while there's an inquiry into whether he paid tax on a golden handshake from a previous job. Labour currently has just a one seat majority in the house, anything threatening that could lead to a snap election. Labour Party President Mike Williams is with me now.
There's a suggestion that you knew about the tax issue before – true?
MIKE
No, no.
SIMON
The first you knew of it was when it arose in the media?
MIKE
That’s correct.
SIMON
What are your contingency plans if John Tamihere has to resign?
MIKE
Well that’s down the track, we don’t know that it's gonna happen, obviously the possibilities are a by-election which I'm pretty certain we'd win.
SIMON
Pretty certain you'd win?
MIKE
Yeah.
SIMON
You don’t think the Maori Party's a threat there?
MIKE
No I don’t.
SIMON
Why not?
MIKE
Well our polling just doesn’t show him a threat and particularly weak in Auckland and it would depend very much, I mean there's the potential that John might resign and run again as a candidate, now he has an immense personal following in that seat and I'd be confident he'd hold the seat.
SIMON
What consideration would you give to an early election?
MIKE
None at the moment, but that’s not the situation and prospect at the moment.
SIMON
You said you don’t have these contingency plans but I'm sure you've thought them through?
MIKE
Well it's a minority government Simon so you've always got the possibility it could fall at any minutes so we maintain a high level of readiness in the Labour Party we have money put away, we have a large proportion of our electorate candidates are selected already we can do the list in a manner of weeks, so the situation in parliament as a minority government means you do keep your readiness very high.
SIMON
If John Tamihere is forced to resign and a by-election is inevitable and the Maori Party pans out in a way that you are not countenancing at the moment are you prepared to do a deal with the greens to prevent an early election?
MIKE
That’s not for me to say, that’s decided in Wellington at a very high level.
SIMON
And what's the current attitude to that?
MIKE
I haven't discussed that with Helen, we don’t think it's a situation that will arise and of course this has arisen while Helen's overseas so there hasn’t been the opportunity to discuss it.
SIMON
Were it to arise would you be prepared to make concessions with the Greens?
MIKE
Again that would not be my function.
SIMON
Looking at what you saw in Australia how confident are you the electorate would support an arrangement with the Greens if that were to happen? I mean we saw in Australia that a Labour arrangement over preference votes with the Greens you know seems to have back fired.
MIKE
I don’t know that you can say that, it was a very interesting election and there were some lessons for New Zealand and I think that the overwhelming lesson is a quote from Bill Clinton it's the economy's stupid, it's very hard to upset an incumbent government during an economic boom and the economy in Australia is growing nearly as fast as the New Zealand economy. I think the second thing is that the impression I got is that voters in Australia at the moment want a safe pair of hands and Mark Latham was up for the first time, and if you look at history in both Australia and New Zealand it's very unusual for a leader to win first time up. If you look at New Zealand Helen Clark the electorate had a good look at her in 1996, elected her in 99, it was the same with Jim Bolger. About the only two leaders that came straight in were Bob Hawk who was well known already and of course David Lange when the National government collapsed. So I think that the key lesson you can take of this is that it is extremely difficult if the economy's going well to move an incumbent government, it's very difficult in good times.
SIMON
That’s looking encouraging though for Helen Clark?
MIKE
Oh it's very encouraging for us but having said that there are some interesting wrinkles underneath this, now every election is compared with the one before obviously, and if you do that then you discover that the Australian Labour Party didn’t do that badly. Now what happened was in the previous election there'd been a significant chunk of the vote went to the Pauline Hansen party and because of the odd preferential system if you recall that party was operating a sort of plague on both your houses kind of approach and giving their preferences against sitting members of course those sitting members were mostly Liberal and National MPs. Now that party disappeared altogether in this election and …
SIMON
Do you see a parallel here?
MIKE
No, I'm just trying to explain the dynamics how it's different from New Zealand, we don’t have a preferential system, we have a proportional but not preferential system, and what happened was those One Nation party preferences overwhelmingly went to the Liberal. So if you look at the figures Labour's actually up a tenth of a percent but the Liberals are up three, three and a half percent, almost exactly the amount lost by the One Nation party.
SIMON
What other lessons would you apply from the Mike Latham experience back here specifically?
MIKE
I think you've got to be very careful in policy releases. I don’t think you can overload the electorate and I think that’s what the Australian Labour Party did. Now they had a piece of bad luck, their centrepiece policy was the ease the squeeze, the balance of benefits and tax adjustments that would favour people earning less than $52,000.
SIMON Too complex?
MIKE It was too complex but they also had bad luck, the day after it was announced of course was the bombing of the Australian Embassy in Jakarta, and that occasioned a three day hiatus when nobody campaigned, so that opportunity was lost, but I think probably the worst example of this piling the policy on was the forestry policy which certainly lost the two Tasmanian seats.
SIMON
And gave John Howard the opportunity to react.
MIKE
Absolutely, and it may well have impacted in some other forest seats like Eden Manero in New South Wales Hinckler in Queensland and Gitson in Victoria. Now that policy had two bits to it, it had protection of old growth forests, but it also had an 800 million mitigation package. Now what the electorate got was the protection of the forests but there wasn’t enough time to look at the mitigation package.
SIMON
So once again bring that back to New Zealand though, how would you apply it?
MIKE
Well I'd apply it that I think if the Labour Party goes into the next election with new policy and it will do so, it's gotta be put out in digestible chunks and not too much at once, and I think that’s a mistake National's making at the moment, they're holding back on any policy, I mean we had the Orewa speech, we then had the law and order which was a bit of a fizzer and they decided we won't do it, well the danger is that you'll sort of snow plough all your policy too close to the election and people just won't absorb it, or it will be misinterpreted by the opposition.
SIMON
How concerning is what we've seen you know Howard's fourth term, how concerning, I mean this is a sustained rejection of centre left.
MIKE
No I wouldn’t say it's a sustained rejection of centre left, because the Liberal National Coalition is actually quite centrist and it's quite centrist for a reason that’s about to go away.
SIMON
But it's definitely centre right I mean the battle in politics these days is …
MIKE
It's to the left of National, the coalition is to the left of National, not that’s not because the Liberals and the National Party haven't got their fair share of right wing ideologues, they have, it's because some of their more radical right wing policies have been stopped in the senate. Now in particular is the full privatisation of Telstra but more importantly is a piece of legislation which very closely resembles the Employment Contracts Act in New Zealand. Now that’s been stopped by the majority in the senate, now that could well go through. It's undecided and I looked at the Australian Electoral Commission's site last night and it's still not clear who's got a majority in the senate if anybody has.
SIMON
What's the one single thing, apart from the simplification of policy and making it into digestible chunks, what's the one single thing you would apply from Australia to New Zealand?
MIKE
I think I would emphasise the danger of changing your government in an economic boom and that was the very powerful message that John Howard got through that Latham was risky, you’re doing well, there's jobs, the economy's going well, why would you bother to change, but you would add to that that there was an extremely expensive negative campaign run by the Liberal Party on interest rates and that’s a real hair trigger issue in Australia because people are borrowed up to the hilt and of course that’s again of course Don Brash in New Zealand is identified with high interest rates, he was a very conservative Governor of the Reserve Bank.
SIMON
When will the election be?
MIKE
In New Zealand? I would say September of next year, but you know as I said at the beginning of this interview it is an minority government it could fall at any time.
SIMON
Labour Party President Mike Williams thanks for joining us on Agenda.
Copyright to Front Page Ltd but may be used PROVIDED attribution is made to TVOne and Agenda
