6. Telecom New Zealand
6.1 Capital Investment
Telecom's major capital investment programme which was begun in 1987 has resulted in the expenditure in excess of $5,900 million, for network and support systems modernisation. Today more than 99 percent of Telecom’s access lines are connected to digital switches.
In 1994 Telecom announced its commitment to upgrade the remaining party-line customers in remote rural areas by 1998. As at March 1997 there were some 661 party-line customers. Telecom has also made a commitment to upgrade the remaining lines served by electromechanical technology based switches to digital by the end of 1998. At the completion of this upgrading program in 1998 Telecom's telephone network will be entirely digitally switched.
The investment in new plant and equipment has also enhanced services to rural areas and consumers. Most rural consumers now enjoy the same standard of service as urban users, and new network investment has enabled the introduction of services such as electronic funds transfer at point of sale in many rural communities.
6.2 New Telecom Network Services
Services such as ISDN and frame relay have been introduced. ISDN enables the transmission of voice, data, and video links using a single telephone line. Frame relay is the first of a number of newly emerging technological developments which will allow the rapid transmission of massive amounts of data.
ATM technology is being trialed in New Zealand by Telecom New Zealand, the Tuia Society and Telecom's systems integration company, Netway, in a three year programme (1996-1998) called OPERA (Organised Programme of Experimentation and Research into ATM).
OPERA aims to fully explore ATM technology, its applications and how it performs over Telecom's network. ATM is a new technology and there are many technical and interworking issues to be addressed by the trial as a premium commercial service is developed. The trial is focusing on commercial applications of ATM of value to New Zealand businesses.
Research is being conducted on a project basis. Projects include specific investigations of ATM, such as: traffic analysis and management, desktop or group video-conferencing, CAD/CAM, networked multimedia applications, and distance learning.
The initiators are: the Tuia Society, a non-profit organisation that includes all New Zealand universities: the Crown Research Institute and the National Library of New Zealand. The Tuia Society's role is to coordinate and promote network interests within the research and education communities. Their objective and involvement in the trial is to investigate the use of ATM on behalf of education and research institutes within New Zealand.
Telecom recently announced the introduction of a commercial ATM offering later in 1997. It said it would be providing LAN bridging, ATM linking, Frame Relay to ATM and 2 M.bit/s emulation.
6.3 Improvement in Efficiency
Telecom has progressively improved its efficiency measured in terms of lines per operating company employee and a range of other indicators (see below), as follows:
| Note: year to 31 March | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 |
| Operating Company Employees | 14,586 | 12,774 | 12,183 | 10,788 | 7,872 | 6,785 | 6,868 | 6,882 |
| Other Employees | 1,677 | 2,151 | 1,379 | 1,550 | 1,385 | 1,523 | 1,685 | } 1,828 |
| Pacific Star | - | - | - | - | - | 260 | 578 | } |
| Lines per Operating Co employee | 96 | 108 | 123 | 142 | 202 | 244 | 250 | 258 |
| Operating expenses per total access line [1] | $1,184 | $1,180 | $1,179 | $1,026[2]
$1,328[3] | $928 | $958 | $974 | $851[4] |
| Assets per total access line [5] | $2,845 | $3,092 | $3,092 | $2,897 | $2,617 | $2,410 | $2,222 | $2,095 |
| Operating Expenses % Operating Revenues | | | | | 64.6% | 63.6% | 62.9% | 60.4%[6] |
[1] Total access lines = number of main lines + cellular connections.]
[2] Excluding 1993 abnormal costs.
[3] Including abnormal restructuring item of $493 million for period 1993-97 in 1993 result with consequent affect in following years.
[4] Excludes 1997 abnormal items.
[5] Total assets from balance sheet.
[6] Excludes 1997 abnormal items, includes Pacific Star which is now classified by Telecom as a discontinued business operation
6.4 Telecom's Present Structure
In 1993, the Telecom’s Regional Operating Companies together with other subsidiaries providing local loop services, were re-formed into one operating company, Telecom New Zealand Ltd, with responsibility for the provision of basic customer services nation-wide, while other subsidiary companies, such as Telecom Cellular, Telecom International etc, continued to operate separately. This move was undertaken as part of Telecom's ongoing efforts to reduce its costs and improve its services.
In April 1995 Telecom further restructured after a comprehensive organisational review. The new structure merged the international and mobile communications companies with the main operating company and established the following groups: Telecom Network Services which operates and develops Telecom's fixed-line and mobile networks; Telecom Services which markets and sells to corporate, business and consumer customers, the products and services delivered by Telecom Network; a Design Build and Maintenance Unit responsible for network technology and maintenance programs (which would provide services on a contestable basis); and established new enterprise units for developing new business initiatives, such as internet services.
As an example of the decision to introduce contestability, Telecom recently entered into a three year contract with GEC who will take responsibility for some 30% of the Christchurch network outside plant maintenance.
6.5 Telecom Service Performance
Since corporatisation the time taken for a new telephone connection has improved from 6 to 8 weeks to just 48 hours on weekdays. Previously, waiting lists [A 19,000 waiting list was reported in the Post Office’s 1987 Annual Report.] with delays of many months, had developed in some years.
Since Clear Communications commenced services, and began offering a customer inquiry answering service on a 24-hour per day basis, Telecom has implemented a similar service for most areas for up to 15-hours per day. The majority of residential telephone faults are repaired by 5.00 pm. the next business day.
Telecom's telephone fault service performance has progressively improved since deregulation, but has marginally deteriorated in recent times. Telecom cites a number of contributing factors, bad weather and the difficulties arising with the centralisation of nation-wide fault testing facilities at one site, and has committed itself to addressing the problem. The Government has expressed its concern and is closely monitoring the situation. There has been a deterioration in directory service answering times in the latest published results.
6.6 Telecom’s Customer Premises Equipment Standards
Telecom operates a "permit to connect" approval system for telephone equipment which is to be connected to its network. Standards are developed in consultation with interested parties, and are designed to ensure that electrical safety and network compatibility requirements are met. The process has gained widespread acceptance in New Zealand (and is similar to the practice in Australia). Test results, from overseas laboratories, that meet New Zealand equipment standard requirements are accepted.
Both the range of equipment and the number of suppliers has increased considerably. As at 30 September 1996, over 3000 Telepermits including some 80 Limited Permits had been issued. A large proportion are for fax machines and modems. The public has benefited from this variety as the price of terminal equipment has been reduced and the range of features has increased. A large number of New Zealanders, both residential and business, now choose to purchase their own handsets, rather than rent the equipment from Telecom.
6.7 Telecom Cellular and Other Network Services
Telecom introduced cellular telecommunications into New Zealand in 1987. Since then Telecom Cellular Ltd has rapidly expanded its service.
Telecom acquired a second AMPS cellular spectrum block in 1992 which has enabled it to introduce a digital service (based on digital AMPS technology), while maintaining its existing analogue service, and will enable other service improvements. This new digital service offers advantages over the analogue technology, particularly in terms of call security, and also provides an upgrade path.
Telecom recently released its first personal communications service (PCS) offering based on experience obtained in its PCS field trial. The service uses a new generation of cellular handsets and a personal micro-cell base station located in the customers premises. This provides the facility for cellular calls within the micro-cell to be charged at a different rate to those outside. The handset can be a PABX extension (within the micro-cell coverage area) or a DDI number for calls originating outside the micro-cell.
| Telecom uses an accredited reseller franchise structure to distribute its cellular service. The current Telecom cellular resellers are shown opposite. | Telecom Cellular Service Providers:
- Cellnet;
- Ericsson;
- Motorola.
|
In excess of $32 million has been invested in the public payphone system. Today, some 98 percent of Telecom's payphones are in working order at any time, compared with some 76 percent in 1988, and the public has benefited from the introduction of cardphones.
Telecom is rolling out cable TV service past some 70,000 homes in Auckland and Wellington. Telecom First Media is responsible for developing and marketing entertainment and information services and is currently growing the customer base and has reported a good response to its introductory cable TV offering. First Media offers 11 channels plus pay per view and free to air channels. In the longer term it plans to provide educational programming, high speed internet access, and home shopping and banking.
Telecom launched an internet service, XTRA, in May 1996. After six months of operation XTRA had attracted more than 25,000 customers, and at March 1997 had 51,000 customers. In August 1996 XTRA introduced a new price structure of $2.50/hour in main centres and $4.95/hour for other areas via 0800 number access, an installation fee of $39.95 and no monthly subscription fee.
6.8 Telecom's Return on Average Shareholder Funds
Telecom has dramatically improved its rate of return on shareholder funds in recent years. Data from 1989 onwards is presented in the following table. It should be noted that Telecom states in its Annual Reports that had the price paid for Telecom by the shareholding consortium in 1990 been reflected in Telecom's accounts, the rate of return on shareholders' equity for 1996 would have been 13.5%, and in 1997 it would have been 15.8%.
| financial year ending March | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 |
| Rate of return on average shareholder funds % | 10 | 10 | 13 | 15.2 | 17.8[1] | 23.6 | 30.1 | 33.8 | 30.7[2] |
| Rate of return on average shareholder funds including estimated value of intangible assets % | | | | | | 12.1 | 15.8 | 18.7 | 12.4[3] |
[1] Note: Adjusted to include future restructuring provision set aside in the 1992-93 financial year
[2] Note: The combined affect of the share buy back and the restructuring provision are included.
[3]Note: This figure reportedly includes some allowance for Telecom’s Brands which have been independently valued at $2.63 Billion.
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