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Telecom Annual Report Emphasises Online Strategies

The rapidly developing online world holds enormous potential to benefit New Zealand, Telecom Chief Executive Roderick Deane says in the company's 1999 annual report.

The report, mailed to shareholders today, emphasises the company's strategy to lead the move online.

Dr Deane said the online world offered an entirely new way of doing business, leading to potential strongly enhanced returns for investors.

He noted that seven of the top 10 performing companies in the United States now had an online focus.

"Over the past year or two, mergers and partnerships have seen relatively young and small companies become global players, while some established companies have been toppled from their comfortable perches by lightning-fast technological change, coupled with government's continued appetite for deregulation," he said.

Dr Deane said Telecom operated in the most dynamic industry in the world. He said smart businesses were re-inventing themselves to benefit from powerful, flexible computer networks and that the biggest computer network of all, the Internet, holds the greatest potential power.

The report outlines how much of Telecom's own business is now conducted online and describes the company's strategy to help other New Zealand businesses operate more effectively and efficiently by using online technologies. With Telecom providing fast and reliable access to the online world, New Zealand businesses could use services they could never have accessed in the past.

The report said Telecom's $822 million after-tax earnings was supported by strong growth in the Internet businesses and cellular calling.

Dr Deane said people needed to consider the nature and size of Telecom in order to fully understand its performance. Telecom had a commercial relationship with almost every New Zealand household and hundreds of thousands of businesses, but its physical presence could be almost invisible.

Dr Deane highlighted some of the figures which underscore Telecom's comparative size - such as its management of 126,500 km of copper cable (enough to circle New Zealand 22 times) and 500 exchanges to provide 350,000 hours of paid voice traffic each day.

"Telecom is integrated into the fabric of New Zealand to such an extent that it can be easy to underestimate the huge resources available to every customer. For a few cents per call-minute - often less than the price of a newspaper - our customers can use our network, and those of hundreds of other companies worldwide, to talk to someone on the other side of the planet or transfer information and provide services for their own customers," Dr Deane said.

Chairman Peter Shirtcliffe, who has spent 13 years on the Telecom Board and 31 years as a company director, said Telecom's experience was proof of the success of deregulation.

Economic deregulation had removed costs for taxpayers and removed distortions from business decision making. Businesses now had to pay attention to their customers' needs if they wanted to succeed.

"Telecom's customers, whether at home or in business, have seen prices for telecommunications products and services plummet since the market was opened," Mr Shirtcliffe said.

"Toll calls that had cost a few dollars in the late eighties now cost just a few cents in the late nineties."

Dr Deane said New Zealand's open deregulated market had attracted a huge array of competing telecommunications companies. While some competitors criticised New Zealand's regulatory environment they nevertheless continued to invest hundreds of millions of dollars here.

"Their actions speak louder than their words and support Telecom shareholders' belief that New Zealand is an excellent place for telecommunications investment," Dr Deane said.

Some companies actively sought intervention in the telecommunications market but others had "declined to engage in such shenanigans" and were concentrating instead on meeting their customers' needs, he said.

"Telecom is always pleased to meet these competitors in the market because the net result of competition in New Zealand has consistently been a better deal for customers." He said it would be unfortunate if calls for regulatory intervention were to succeed. Tampering in the marketplace would cause distortion and risked delaying the introduction of the new technologies that New Zealand so urgently needs.

"While those calling for intervention might benefit in the short term, New Zealanders as a whole would pay the price. Calling for intervention should be seen for what it is: an attempt to gain commercial advantage," Dr Deane said.

Mr Shirtcliffe said that even in a deregulated market, a few basic ground rules were important - but he warned against attitudes and rules that suppressed entrepreneurs.

"Telecom has built and nurtured a strong entrepreneurial ethos and we have done this partly by rewarding those who are prepared to work hard and take well-considered risks on behalf of the company," Mr Shirtcliffe said.

"Most Telecom shareholders recognise the important need to reward imagination, talent and hard work."

The report shows Dr Deane's remuneration and benefits totaled $1.88 million in the year to 31 March 1999. The figure includes salary, bonuses, share options and the value of other benefits such as car parking and telephones. While share options have a nominal value, they are worthless unless Telecom's share price reaches certain levels.

Telecom's shareholders had a legitimate interest in how much their employees are paid, Mr Shirtcliffe said. However, some non-shareholders also apparently wished to comment and "unfortunately, some New Zealanders' attitudes to senior management remuneration reflect a degree of envy, rather than facing the realities of the modern international business world.

"Talent sets its own price and if we don't pay well then some of our talented employees will work overseas or for themselves or our competitors, none of which helps grow value for Telecom's shareholders," Mr Shirtcliffe said

He said Telecom paid salaries comparable to other companies of the same size. A significant portion of each Telecom executive's remuneration package was made up of bonuses paid only when individuals reached certain performance targets, which was common international practice.


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