Bastard Offspring Of The Market

- by John Minto

The story of Telecom is the story of New Zealand and the story of the Labour Party. I’m not just talking about events of early 2010 but the tale of the company and the country since Telecom was privatised in 1990. Telecom is struggling for the same reason our national economy is struggling. Market values have replaced the values of service and citizenship. It might seem strange to people under 35 that the Government ever ran a telecommunications network. But it did, and it did so competently. The service wasn’t flashy but it was brilliant compared to what Telecom has offered. Accountability came through elected Ministers who knew service breakdown meant their heads were on the block.

20 years ago the XT network failures of recent months would have seen politicians grilled mercilessly on radio and TV. Not now. Who knows the name of the Minister responsible for telecommunications?* The Government has been all but invisible and we are left with the bereft figure of an unelected Scotsman apologising repeatedly to the public for the multiple failures of a major communications network and the collapse of the 111 emergency call system. Democratic accountability through the rights of citizenship has been replaced by the rights of consumers in the marketplace. If we don’t like the service we can change providers. Except for 111... * The Communications Minister is the seemingly ubiquitous Steven Joyce, who is reprising the Minister of Everything role of Bill Birch in the 1990s’ National government, or Michael Cullen in the last Labour government. Ed.

Telecom’s present troubles go back to its inception and the running of the company for shareholders rather than phone users. Writing in 2004 economist Bill Rosenberg summed up the main issues: “Telecom’s overseas owners have failed to live up to the promise of making new technology available to New Zealanders... They have sacked thousands of employees and have extracted billions from New Zealand in profits and capital, while over-charging for services (such as broadband networking to the home) ...using every possible means to keep out the competitors who would not have been necessary had it been providing a decent service. From 1995 to 2004 it paid out more than its net earnings in dividends (reported earnings of NZ$6,464 million and dividends paid out of NZ$6,698 million), for most of that time its capital expenditure barely covering reported depreciation. It was running down its assets”. The same problem continues today.

The company has worked hard to keep out competition and New Zealanders were slow to get new technological developments and when they arrived they were expensive. Former Board member Rod Deane explained in a biography how the company employed over 90 lawyers. Don’t think these bods were there to keep the phones running. They were there to fight any attempts at Government regulation and to thereby maintain what until recently has been a private monopoly. It’s also worth remembering the revealing words of former Telecom Chief Executive Officer Theresa Gattung who admitted deliberately deceiving Telecom customers while speaking to a meeting of financial analysts in early 2006: "Think about pricing. What has every telco in the world done in the past? It's used confusion as its chief marketing tool. And that's fine," she said. "You could argue that that's how all of us keep calling prices up and get those revenues, high-margin businesses, keep them going for a lot longer than would have been the case. But at some level, whether they consciously articulate it or not, customers know that's what the game has been. They know we're not being straight up". Knowing you’ve been screwed by Telecom is a familiar feeling for New Zealanders.

In 2009 the company forced its maintenance employees to become dependent contractors. These workers now pay for their own tools and vans and must rely totally on calls from Telecom to attend maintenance callouts. The workers are now on much lower incomes while the company is absolved from the provisions of the Employment Relations Act such as providing sick leave and annual leave. Meanwhile the Telecom CEO is the highest paid person in the country - $7 million in 2009. The national economy has suffered the same hollowing out as Telecom. The private sector has cannibalised the profitable parts of the economy and left us heavily in debt. Workers are on low wages, facing higher taxes and lower levels of Government-provided services while the country searches for capital for investment. If Telecom was still publicly owned we’d have politicians baying for blood and the likes of Rodney Hide squealing like a stuck pig and demanding accountability. The disgruntled workers at the Philippines call centre who texted “fuck you” to unhappy New Zealand Telecom customers recently back missed their target. They should have been communicating with the hapless Scotsman and our free market cheerleaders in Wellington.

Any Idiot Could Have Done The Job

Meanwhile former Telecom head Therese Gattung has stepped into the spotlight once more to remind us of the Telecom nightmare with a book “Bird on a Wire” (“Parasite on the Public” would have been a more appropriate title). Gattung took the time to criticise the salaries now being paid to Telecom executives saying that despite profits having been halved since she led the corporation the salary packages have increased. "Now that I'm long gone I, with the rest of the country, wonder about the propriety of a company making half the annual profits it did a few years ago but paying its executives considerably higher salaries". Telecom’s share price has dropped by 80% from its peak ten years ago. It was once the biggest company on the New Zealand Stock Exchange but it has now been passed by Fletcher Building. But failure is never a reason for executives to trim their incomes . Despite a dramatic slide in its value over the past three years the company paid its top executive team a total of $20.3 million in 2009 - well up on the $17.5 million it paid the previous year.

The number of employees earning over $100,000 went from one quarter of employees to one third with some doing much better than others. Chief Technology Officer Mark Ratcliffe had a salary increase from $1.4 million to $1.9 million while Wholesale chief Matt Crockett saw his salary increase from less than $1 million in 2008 to $1.4 million last year. It’s important to see these executive salaries as part of a wider picture of global neo-liberalism where senior executives have leveraged up their salaries with claims they are indispensible and their salaries reflect the market place. Telecom itself justifies these salaries saying the company “operates in a global market and must pay globally competitive salaries”. How often have we heard these tired clichés of the marketplace?

Most of these jobs could be done by any semi-competent public servant for tiny percentage of Telecom Chief Executive Paul Reynolds’s $7 million salary package. Company shares are trading now around $2.30 and won’t drop much lower because this base value reflects the steady income stream from fixed home phone rentals. While the latest Telecom technology has failed repeatedly the good old mum and dad working New Zealanders have prevented the total collapse of a company which when push came to shove simply couldn’t compete in the much vaunted marketplace lauded by the Labour politicians who in 1990 sold the business for $4.25 billion and in the process sold out the New Zealand public. As Unite Union National Secretary Matt McCarten says: “If there was any justice these crooks would by now be giving apologies from prison cells”.

The reason for the dramatic decline in Telecom fortunes these past three years is because the Labour Communications Minister David Cunliffe in 2007 finally regulated so that Telecom was forced to “unbundle the loop” and allow competitors to use their network. Telecom had a virtual monopoly from the time Labour Minister Richard Prebble sold the telecommunications State-owned Enterprise to the corporate, including some of his mates, in 1990. Gattung presided over this private monopoly which milked New Zealanders by the billion.

She didn’t need to be competent. All she had to do was to set the monopoly prices to deliver the profits the shareholders wanted, delay investment to maintain high profits, keep the politicians in line, and the regulators at bay. Any idiot could have done the job. For 17 years this worked until even the free marketers in Labour just couldn’t stomach it any longer and David Cunliffe finally regulated to force Telecom to compete. Gattung had no idea how to run a competitive business so took a golden parachute of $3.9 million on top of her $1.25 million annual salary and left an appalling example for young women.

Gattung blames politicians for Telecom's latest woes. She said she predicted in 2007 that the Labour government's decision to give competitors access to Telecom's exchanges, and to split the company into three divisions, would result in a "train wreck". Gattung admits the company couldn’t survive competition. In a final irony in her book, Gattung says former Labour Party President Mike Williams approached her shortly before she left Telecom to stand for Labour. She says she was "flabbergasted". I’m not. The important lesson here is that Labour today is still the same old Labour which began the Telecom debacle 20 years ago.

Telecom is the only transnational corporation to have been a finalist in every annual Roger Award since the Award started in 1997. In 2009 it came third. The Judges’ Statement said: “ Telecom gained third place for the same reasons it has won this Award in the past, which are principally its monopolisation of telephone lines and their servicing, and the extremely poor service it provides to its direct customers and to the other telcos who must contract services from Telecom. In 2009 Telecom really excelled itself in providing poor service and treating its customers like rubbish, with its deceptively over-hyped XT mobile network and fast broadband services, which both failed to deliver, cheating customers out of money and in some cases costing them their business. Telecom then rubbed salt in the wound by the slowness and inadequacy of its compensation offers. In 2009 Telecom also took further steps to ensure that its service remains below par and its reputation in rags by giving its technical staff the 'choice' between becoming a sub-contractor or joining the dole queue. At the same time as Telecom was in the process of forcing its employees to become low paid contractors (or unemployed), it was paying obscene salaries and bonuses to its top executives. This was in addition to expatriating large profits and dividends which could be better used to upgrade and provide better services in New Zealand”. Ed.

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Foreign Control Watchdog, P O Box 2258, Christchurch, New Zealand/Aotearoa. May 2010.


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