Its the cash cow of every incumbent telco around the world, and its declining but slowly.
Almost a quarter of Telecom New Zealands revenue comes from landline calling. According to its annual report, Telecom earned $1,049 million from fixed access and calling the Public Switched Telephone Network (PSTN) in the financial year ending June 30, 2012.
The reduction in this revenue is identified in the annual report as one of the key risks facing Telecom but something called Vision 2013 strategy will grow revenues in broadband, mobile and ICT (Gen-i) to combat the fall.
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The annual report was written before Simon Moutter joined the company as CEO in August. Its his second tour of duty at the company, as he served on Theresa Gattungs executive team and was acting CEO during the months between Gattungs departure and Paul Reynolds appointment in 2007.
Moutter is working on his own strategy, which is due to be released next year. But in an interview with Computerworld in November he provided some insight into the shape of the new Telecom.
Telcos are mostly going to sell gigabytes in the future. The revenue that funds all our massive infrastructure, whether it be fixed or mobile, is going to come from selling gigabytes as opposed to minutes and messages.
The way to differentiate plans will be by the amount of data that is sold, according to Moutter.
Data is the saleable item and will be bought in parcels and volumes, and its good for the market to have alternatives that are cheap and low volume and medium and high. Some fast, some slow. Unless you create a diverse range of offers that meet every market, you end up with an unhealthy market.
Moutter says there is no point in uncapped plans. That would be like selling electricity with unlimited electricity for $50 a month; how the hell would that be efficient? That would be insane.
But dont telcos sell more than just a pipe? They sell services, such as voice calling and content. Telecom has already one failed experiment in the area of content delivery a digital service in partnership with TVNZ and TiVo. Would it contemplate another when launching its residential fibre plans?
At the moment the field is open in New Zealand, and all of us will have to make a choice about the role we play in that. But in a world where none of us own the access line, were all effectively resellers of access, Moutter says.
In other words, content makes sense for telcos when they own the network and are competing against another network. It makes less sense when all service providers are retailers, and the infrastructure owners Chorus and the Local Fibre Companies Northpower, Enable Networks and Ultra Fast Fibre are prevented by law from becoming RSPs.
Content issues aside, how will Telecom deliver a voice service as part of its residential fibre plans?
Id be very negative about trying to continue to offer a PSTN equivalent. Weve got fibre so of course we should be working toward software-based voice, Moutter says.
Now whether thats on fibre or is better done on the mobile in a fibred home, or what the sequencing of that looks like, Im not wedded to. I know in my own home Id just take a naked fibre broadband service and Id happily make my voice calls on my mobile today.
Were talking about 2017 before fibre is out there, so over that period of time a lot is going to change. If that revenue for voice has shifted to mobile thats fine.
Which sounds like Moutter could be positioning Telecom to be a big, fat, dumb pipe albeit one that carefully parcels out bandwidth.
Telecommunications Users Association of New Zealand CEO Paul Brislen says telcos arent good at competing with over-the-top players such as Facebook, Apple and Google.
Theyre just too big; theyre focused on network, on sales, on acquisition, on churn, ARPU (average revenue per user). Nobody is thinking hey, lets whip up a quick app and chuck it out and see what happens, he says.
My ideal telco in 10 years time will be one that provides me with a connection to the internet and then gets out of the way.
But a big, fat, dumb pipe parcelling out bandwidth isnt going to be enough to keep the 7,000 or so current staff at Telecom in gainful employment. Telecoms head count far exceeds rival Vodafones 3,200 staff (and thats counting staff from its recent acquisition of TelstraClear). So how will Moutter trim it?
Moutter says he cant make any decisions on head count yet and that it will depend on how fast the company can tidy up its systems and IT stack which he says is complex from having seven years of regulatory pressure upon it.
In the lingo of telcos, OSS and BSS [Operating Support Systems and Business Support Systems how a telco provisions and charges for services] we have hundreds of IT platforms, all joined together and a string of various ages, and it makes service delivery improvement, product development every component very challenging.
We end up having to put veneers on the front and have a lot of people in the process to make sure that when the system cant cope we have people who make up for it.
He says if the company decides to become a simplistic data pipes business then shrinkage would be necessary in order to be efficient.
Moutter says its ICT division Gen-i is also labour intensive, although he appears committed to retaining it. In his first tour of duty at Telecom he was responsible for its creation [from the purchase of Gen-i and Computerland].
Gen-i had 14 per cent of the New Zealand IT services market in the last financial year, and according to Telecoms annual report, this makes it the domestic market leader.
Its had a few setbacks lately, however it didnt bid for the ACC contract, and its had to concede large chunks of a Ministry of Justice contract. But this doesnt appear to faze Moutter:
You cant win every bid so its normal to have some movement, customers make different decisions about how they want to partner or commoditise, to insource or outsource, he says.
Gen-is competitors Revera, Datacom and IBM have all made recent investments (in the tens of millions of dollars) in datacentres and have been rewarded with a place on the governments Infrastructure-as-a-Service supply panel. Will Telecom make similar investments?
Weve just announced were building three brand new datacentres, he says.
These are in Auckland, Wellington and Christchurch are will be built with the next two years.
Where Moutter is reluctant to invest is in local loop unbundling. In two years Telecom will be able, under the terms of structural separation, to put its own equipment in exchanges.
Its not where Id prefer to go. Weve got a government which has made the bold, ambitious move to drive fibre to the home. Im much more interested in what we can do to make that real for New Zealanders. Thats actually today quite a hard sell, but as service providers we should be inspired by that possibility.
He says he will buy inputs from anyone.
Im 100 percent clear what my future looks like. I buy access inputs to deliver services to end customers. I dont see myself as needing to be involved in that [unbundling] if Ive got multiple providers who will sell me access inputs, whether they are fibre or plain old copper. Depending on the need, then Ill buy them from anyone.