26/12/2006

TELSTRACLEAR, DR FREETH AND DICKENS

A great story turned up just before Christmas, broken by Juha Saarinen, who generally writes for Computerworld but had this particular gem published in Aussie telecoms industry magazine CommsDay.

The story arose from a leaked memo the chief executive of TelstraClear, Dr. Allan Freeth, sent to his key executives. The is quite bizarre, unlike anything I've ever read from a chief executive.

Dr. Freeth is an odd character to preside over a telecoms company. He came fromagricultural supplies company Wrightsons and has a scientific background. He's
notable for having completely departed from the style and and approach of previous TelstraClear Rosemary Howard, who had huge ambitions for the company, but departed once she realised she would never be able to achieve them without unbundling. On Freeth's arrival, he immediately went about distancing himself from the rest of the industry and reining in aspirations for the company. TelstraClear would now be a niche player, cherry picking business only where it's profitable for them to do so. That's all well and fine, Freeth could be seen as a shrewd and realistic operator for doing so. But TelstraClear has languished under his leadership and is in serious danger of being usurped completely by Vodafone and it's new acquisition ihug.

It's ironic that the challenger spirit Howard attempted to foster has been dumped and that Freeth is now complaining that TelstraClear is being hammered by its competitors. TelstraClear is in serious trouble. Only new leadership can save the company from ending up a patchy take-over target for one of its strengthening competitors.

Anyway, here's that bizarre Dr. Freeth memo for your amusement (thanks to Juha for supplying it)

From: Infoline
Sent: Tuesday, 19 December, 2006 15:01
To: * All TelstraClear Staff
Subject: Message from Chief Executive Allan Freeth

Message from Chief Executive Allan Freeth
This morning, I delivered the following message to the Leadership Team (LT) and senior managers, at the last ‘Start of Week’ for 2006 - week 51 for those of you who are counting.

Thank you for your hard work and commitment during 2006, I want to review the progress we have made during the last year and to outline some of the challenges, and the key challenge, we are facing for the remainder of this financial year.
So, as I have started some other presentations, the first few lines from Dickens’s
Tale of Two Cities come to mind:

" It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief it was epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way …"

For TelstraClear, it was the spring of hope and light with everything before us, because we have convinced Sol and Telstra, that we have a future and we intend to win - the so called Big Plays of 2007 - more on that later.

The best of times because we have been successful at completing a large number of very important and difficult achievements - let’s consider some of them:

* Implemented our new strategy and structure, including some of the last minute changes made this year to Small and Medium Enterprises (SME) and Large Enterprise (LE)
* Established a Project Office and some impressive management of projects
* Began really thinking about the customer in a way that had been lost for sometime in the company
* Rebuilt our ISP’s ‘in flight’ and then upgraded them, so that today, we are way-ahead of the competition in dealing with spam
* Strengthened our core networks and began removing single points of failure
* Completed a good part of the South Island loop, the one talked about and never started for five years
* Have finished, done, dusted and blown-up the Mega billing system - remember the one we tried to get onto for five years
* We are building a 3G network in Tauranga that will lead the world in terms of a converged service and is, we hope, a precursor to a full national play
* Reclaimed our brand position with Hello World and product advertising
* Began looking at remuneration and leadership
* Achieved an improvement in our EOS results that reflects the turnaround underway in this company
* Cleared away the many headaches of audit problems and conducted one of the most
comprehensive disaster recovery tests undertaken by the company
* Opened our first retail store in Wellington with several to follow in Tauranga
* Reduced our install wait times in the Consumer on-net space to the lowest in the company’s history
* Undertaken a major project to see how to transform our Operational Support Systems (OSS) and Business Support Systems (BSS)
* Improved productivity throughout the company
* Taken the first steps to understanding our need to work as ‘One Team - One Company’
* Been the recipient of the benefits of the largest Government intervention in an industry since the 1984 Reforms of Roger Douglas, ironically the very philosophy which has denied us a fair go since
that time.

So yes, it has been the best of times, the age of wisdom and the season of light. But we have still not been able to translate all this into some notable achievements, namely:

* Our customer service is overall indifferent at best, rubbish at worst
* Our revenue and profit are not reflecting all the hard work
* We are slowly and gradually losing customers
* We are not hitting our Plan numbers, nor are we now hitting our forecasts – our Chairman last week accused me of running a company that ‘was out of control’
* We still work in silos and talk about them and us
* And, right now, we are on a trajectory to disaster, with a forecast EBIT (profit) loss of $7 million
for this current year - we are being out-marketed, out-smarted and out-gunned in the market place.
We are too slow in reacting and we lack the killer instinct.

Surprised - well join me, it was a surprise to me as well. Oh yes, we lack the killer instinct - we are too tame, too lame, and too timid to call ourselves a challenger.

A challenger winds their opposition, kicks them down to the ground, and then makes them bleed like something from a Quentin Tarantino movie and then finishes them off - fast.

In comparison, we are like a Walt Disney Bambi character. We are not Ulma Thurman in Kill Bill, we are more like Captain Feathersword in The Wiggles, all bluster and no action.

We are looking at the worst of times, the winter of despair, and nothing before us.
Two weeks ago, Sol’s parting comments to me were he ‘feeds those who feed themselves.’

Well,based on our current forecast, we will be anorexic and starving by the end of this financial year.

Sol has committed to this company, to me, and the Leadership Team, a number of very exciting and ‘incumbent terminating’ initiatives, some of which are underway now with launch dates for early next year. This, combined with the telecommunications regulatory changes in New Zealand, is everything we ever wanted.

At the time Sol made his commitment, he thought we were going to make $14.8 million EBIT (profit), with an attempt to get back on track for our Plan number of $19 million.

Instead, at some point over the next few weeks, I am going to have to explain to Sol that we will be forecasting a $7 million loss - with a hope of trying to get to breakeven.

Now, I know it’s not fair - I and everyone here at TelstraClear know that it’s not fair. When I started, I took over a company in operational distress. It had been the victim of not enough investment over four years, poor strategy, and a history of using accounting provisions, created at merger time, to make everyone look good.
Yes, it’s not fair, and the key point is, no one in the new team at Telstra gives a toss.

Yes it’s not fair, but let me be clear, there is no way I am going let this beat me because this company and I are going to win.

If you don’t believe that - then you are in the wrong place at the wrong time - it’s time to move on.

If you don’t have the stomach for the fight or the work that has to be done – then you are also in the wrong place at the wrong time - it’s time to move on.

But if you do, then step up and let’s move it.
So, before profit comes revenue, and as of last Friday, our overall revenue is behind Plan by around $67 million.

Assuming that’s one fight we won’t win in the next six months, what do we need to do? Here’s the

list:
* Consumer and Steve Jackson need capacity on the network, pre-consented access to multiple
dwelling units (MDU’s) and fast price changes.
* SME and Brenda Stonestreet need quick and fast on-net and off-net installations, a backlog of 300 orders turned on, and corridor plans on Arbor sorted – product development is also a problem.
* Large Enterprise and Mark Wilson need quick and fast installations and core stability of the network - I mean zero outages or at least zero effects of outages on key and corporate customers to ensure customers have faith and to stop penalty payments being incurred.
* Wholesale and Raymond O’Brien need the problems with ANIs and CDRs fixed, and all billing problems managed - they also need their product development completed.
* Unplugged or Helix must be delivered on time and to budget.
And that’s all.

Now, the other thing before profit is costs, and frankly, if it’s not providing oxygen or food, then it’s not important … shut it down and stop it where you can:
* But the headcount requests continue to pour in
* The travel has slowed down, but the message hasn’t got through
* People still continue to be focused on their pet projects or the fact they want this or that done
regardless of what’s happening around them, the context has changed, its like petulant teenagers throwing a tantrum against the real world
* Everybody wants to save someone else’s capital spend and opex
* Bottom line - if it doesn’t give me revenue, saves costs, reduce a real risk with a high probability, or improve customer satisfaction significantly in the next six months - then it’s no use to me or to you or to this company

That doesn’t mean it won’t be done, but it does mean that we live to fight another day and will do so at a time when we are generating more revenue from the big plays
So, at this worst of times, in the best of times, I really need your help - I need you all to step up, to go back to your teams and pull out your plans and budgets to ask some of the questions I have posed and the following:

* Will spending that money or undertaking that project deliver revenue this financial year?
* Will not spending that money hurt the company’s long-term success?
* Will not spending that money directly impact the business strategy? If you’re not sure, then talk to your LT member, especially about managing risk, they will help you decide.

I am not going to ask you to go away over Christmas and work this out, I need you to find the answers this week and begin stopping, starting, or changing things before you leave this Friday.

Later today, or early tomorrow, I will be appointing a person, reporting directly to me, whose job it will be to help shut down and defer projects, redirect resources to areas such as billing and sales support, to drive these initiatives.

That person, or the people they direct, will consult with you and the LT to help us focus and coordinate our efforts across the company. LT business heads will be asked to be specific about what they need and don’t need - they will call the shots in the first instance - they make the money.

Operations, support units, and I will deliver what they need while managing our costs and ensuring our strategic direction is not compromised and our long-term future is not compromised.

It is the best of times - we are poised for great things - it is our time, but it is also the most difficult of times - we need to be:

* Smart
* Clever
* Focused
* Determined
* A team in all things - a team
* And in terms of our market - premeditated, cold-blooded killers of our competition
* No tricks, no bad play, no underhand tactics, but no compassion, no quarter and no excuses, just hard, unforgiving, and ruthless actions. Giving customers a service and product set that others will die for or die by

* This is not a change of strategy, this is not a change of direction
* This is about getting oxygen, about surviving to fight the fight we want to
* This is about leadership - I know you have it in you, I hope you have it in you - if not, then you need to take stock
* This is about winning, winning, and winning
* Battles are fought and won in a day on tactics, wars are won over months and years on strategy and key principles
* If we get this right - then we are going to smash this market in 2007
* So once you have sorted out your plans, then take a rest, enjoy Christmas, rebuild your strength - next year is going to be a rush

So, finishing where I started - thank you, man for man, woman for woman, you are some of the best I’ve worked with - come back and live up to your potential - believe in it, so that it is the best of times..
It is the age of wisdom
The epoch of belief
The season of light
The spring of hope

With everything before us

And we are all going direct to Heaven

Thank you - make the next few days count.

Regards

Allan

And a column I wrote for the Herald at the time of Vodafone's purchase of ihug examining the potential impact on TelstraClear.

INTERRUPT
by Peter Griffin


Vodafone’s purchase of third-ranked internet provider Ihug is the first major side-effect of the Government’s move to open up Telecom’s fixed line monopoly.
The spirit of Ihug founders, the Wood brothers, has been well and truly laid to rest. Ihug is now owned by one of the biggest multinationals in the world, one that in May reported Britain’s largest ever corporate losses – ₤14.8 billion and is looking to convergence between mobile and fixed line services to get its business back on track.
But, more than anything the Vodafone-Ihug marriage will intensify the fight for the number two spot in the market for phone and internet services and TelstraClear is likely to be the big loser.

When Telstra bought Clear Communications in 2001, there was hope that for the first time we would have a real alternative to Telecom. Indeed we were initially promised that as chief executive Rosemary Howard repeated her “choice and competition” mantra.
Then came disaster – a Government ruling which went against the global trend not to unbundle the local loop and TelstraClear’s failure to win permission to run overhead fibre optic cables through the suburbs of Auckland.

Since then, TelstraClear has had a muddled image in the consumer market, a result of the shift in focus that followed Howard’s departure. Her vision of TelstraClear becoming a real competitor to Telecom across the board was abandoned.
Now that ambition lies with Vodafone and Ihug who with the help of the Government’s u-turn on unbundling may have the first real stab at delivering that triple-play offering of mobile, broadband and fixed-line voice services that’s so crucial to the economics of being a mass market telecoms player. Both companies know the importance of brand and of winning the hearts and minds of customers – that’s what lies behind their success to date.

Both companies have the advantage over TelstraClear of being popular with both business customers and consumers. TelstraClear lost much of the goodwill it had with consumers when it merged Clearnet and Paradise, squeezed the personality out of the two popular internet providers and let quality of service slip as the networks merged.

TelstraClear has complained for years about the restrictive nature of its resale deal with Vodafone and its weakness in not having its own mobile network is going to become more obvious as the Vodafone-Ihug relationship beds down.
Vodafone wants us all to have one handset that acts as home phone and mobile and owning Ihug will help deliver it.

Most of TelstraClear’s 029 mobile customers are business customers but the mobile business is low-margin for TelstraClear and Vodafone doesn’t appear predisposed to offering it a virtual network operator deal, the type that allowed players like Virgin Mobile to become serious competitors in Britain.

TelstraClear’s revenue increased just $11 million to $727 million in the year to June 30. The company is effectively in limbo as it waits for regulation to deliver lower cost access to Telecom’s network.

The most significant development at TelstraClear in the last six months has been its decision to spend $50 million on a wireless network – in Tauranga.

TelstraClear is still the second biggest player in the fixed-line world, but without the breadth of focus of Telecom and Vodafone, has much to lose from the latter’s move into fixed-line services.

At the launch of Ihug’s new flat-rate calling plans last month, chief executive Mark Rushworth said it was likely that Ihug would initially take more customers off TelstraClear than Telecom. There’s little love loss between those fighting it out in the shadow of the ultimate foe – Telecom.

When you can get your Ihug broadband and home phone line on the same bill as your Vodafone mobile account are we going to start seeing significant customer “churn” away from Telecom and TelstraClear?

That depends on how unbundling pans out in practice. Ihug boldly stated last year it would spend $20 million if unbundling went ahead, an investment promise more likely to happen with Vodafone as owner than if internet provider Orcon had been successful in its $30 million bid for Ihug. If Vodafone commits to a serious investment in putting equipment into Telecom’s exchanges and preserves Ihug’s strong identity, we may begin to see that real alternative we were promised.

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