Q+A’s Paul Holmes Interviews Telecom CEO, Paul Reynolds.

Points of interest:
- CEO’s $3 million performance bonus “is going to be affected by this, of course”
- Reynolds denies budget issues with its new technology: “In no way did we skimp on XT”
Asked if Telecom is struggling with historic under-investment, Reynolds says the company has doubled its technology investment since his arrival
- XT failures “nothing to do with a lack of capacity”
- Reynolds tells Joyce: Telecom still the best company for broadband roll-out

The interview has been transcribed below. Q+A is repeated on TVNZ 7 at 9.10pm on Sunday nights and 10.10am and 2.10pm on Mondays. The full length video interviews and panel discussions from this morning’s Q+A can also be seen on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

PAUL REYNOLDS interviewed by PAUL HOLMES

PAUL Not only did we have politicians apologising this week, but also Telecom's Chief Executive, Dr Paul Reynolds He was apologising for the latest failure of the XT network, the third time since Christmas, the fourth since last May, and of course on Friday morning we had news that the 111 system broke down in the greater Auckland area at 3.30am with some people not being able to reach Police, fire and ambulance. Now the Minister of Communications, Stephen Joyce wants answers and he's investigating, and he isn't the only one looking for answers. Good morning to Paul Reynolds, Chief Executive of Telecom, thank you very much for joining us.

DR PAUL REYNOLDS – Telecom CEO
Good morning.

PAUL A nightmare week would you say?

DR PAUL A very tough week for Telecom no question, you know we're gonna get to the bottom of these XT issues, they’ve created a lot of publicity, I'm not concerned about their impact on customers.

PAUL Can I talk first about that 111 outage the other morning. Not only did it fail and the back up fail, but it was 45 minutes we understand before Telecom told the cops.

DR PAUL No that’s not true, the 111 system across the country worked, the access to it from part of Auckland didn’t, what happens in those circumstances is if anybody dials 111 and they don’t get through it immediately flashes in our network operation centre and those guys phone the operators who call back. So everyone was called back within a few minutes. The fail safe worked perfectly.

PAUL Next time XT fails south of Taupo, can you guarantee that customers won't have trouble getting 111?

DR PAUL I'm not planning on XT failing, we are doing our damndest to be across this…

PAUL Well you were never planning on XT failing but it continues to fail.

DR PAUL I'm getting it fixed…

PAUL You don’t seem to be able to get it finished.

DR PAUL But let me finish. What does happen on 111, in fact what's new about XT is if there's a problem and the customers can't get through you can get 111 via the other networks, that’s a new thing, it's never been available in New Zealand before now, all the networks are the same technology, the 111s can transfer between networks, so it's an improvement.

PAUL Stephen Joyce investigating one of New Zealand's biggest companies.

DR PAUL I called Stephen on Friday morning and said look we've had a 111 issue, where I come from the minute you have any issue with 111 you do an inquiry and I invited Stephen to joint that inquiry.

PAUL Right, let's talk about the XT network then, this big major headache. Four major outages since the 32 network was introduced in May last year, three since Christmas, there seems to be no end to the problems, will there ever be an end to the problem?

DR PAUL This will be fixed, this will definitely be fixed, there's a problem around the southern zone of our network. Our supplier Alcatel tell us this is a 1500th of these things working round the world and it isn't working in this part of New Zealand.

PAUL That’s right 1500 around the world that work perfectly and the one they did here don’t work.

DR PAUL No no, well there's two here at the moment, and one works perfectly and the one in the south part of New Zealand is not working properly.

PAUL Well we're talking about one entire network.

DR PAUL There's been two sets of issues, there's been operational issues and there have been technology failures, we have got Alcatel a CEO and two of the senior executive team full time on this at the moment, we're gonna get it fixed.

PAUL There is a question really, I mean Telecom looks incompetent, doesn’t it at the moment?

DR PAUL Well we hate it, I hate it. Look over the last two years Telecom's doubled its investment in New Zealand, we've been investing 1.2 billion dollars a year in fibre optics to make Broadband go faster in new mobile networks. The rate of change in New Zealand is unprecedented and faster than anywhere else in the world, and when you get failures like this it makes me extremely angry, particularly when our supplier has let us down. We are going to get it fixed.

PAUL When you’ve spent half a billion on a system.

DR PAUL Absolutely.

PAUL Did you skimp on XT Dr Reynolds?

DR PAUL In no way did we skimp on XT, we decided to go with this new network in mid 2007, originally the company planned to have it launched by the end of 2008. We extended that launch to May 2009 we took 17 months and you know in around Christmas 2008 we announced we were taking longer cos we're gonna test it, we're going to road test it, we're gonna make sure we've got all the coverage fixed, cos we were determined to have more coverage than our competitors. We achieved all of that, and it launched great, it worked great, but we have had these failures and that’s not good enough for customers.

PAUL You see, if it surges, if it overloads it seems we lose the network. Now we know since Friday, you’ve announced you're going to increase the capacity, you're gonna bring forward two new RNCs, Radio Network Controllers.

DR PAUL Sure.

PAUL Yeah? New cell towers, more fibre, you're rolling out more fibre. Did you not have enough capacity when you went to the market with this kit?

DR PAUL No, firstly on fibre, we're the only network in New Zealand fitting fibre to cell towers, that’s what makes it go faster.

PAUL Dr Reynolds, you're increasing capacity, that would make me think you’ve determined that you don’t have sufficient capacity.

DR PAUL No let's get the context right, Telecom has over two million mobile customers, 1.8 million of them are still on our old network, they're progressively migrating to the new one. The new network has about 450,000. As the numbers of customers increase you put more capacity in ahead of that increase in customer numbers.

PAUL Yes but you brought forward the investment in the RNCs, you’ve brought it forward, that indicates to me you don’t think you’ve got enough capacity for when there's a surge.

DR PAUL Those RNCs were ordered, they’ve been in New Zealand since before any of these outages occurred, we'd begun to engineer them in, we are accelerating their completion, the completion of their instalment and that will happen during March.

PAUL And you are accelerating that completion presumably because you do not think you have enough capacity? Would that not be one of your problems?

DR PAUL Not really.

PAUL Alright Vodafone have got six RNCs, you’ve gone to the market with two.

DR PAUL No, well Vodafone have all of two million customers on this network, we're progressively moving ours from a previous network, so there's nothing you know – the RNCs that we have are by the book about one third full, they're about one third full, but of course if we have a problem, and we have had problems, one going down affects half the country, that’s unacceptable, so having two is going to reduce any potential impact on the country, so it's quite reasonable to accelerate the installation, but it's nothing to do with a lack of capacity.

PAUL So why are you accelerating installation?

DR PAUL So if any issue happens there's much less potential impact, because we're gonna go to four, then go to six.

PAUL So if you’ve got four you're probably not going to get a complication during a surge?

DR PAUL I don’t think – that’s not the issue.

PAUL They're 70 million dollars each aren’t they RNCs?

DR PAUL Ah, no.

PAUL Not 70?

DR PAUL No.

PAUL How much?

DR PAUL Oh I can't tell you, it's commercial, but they're not 70, and by the way there is no budget issue at all here, because we already budgeted for all the RNCs we need in the network.

PAUL The phrase south of Taupo coming to mean a complete stuff up, going into the New Zealand vernacular, does that damage the brand, does that bother you?

DR PAUL Well you know the events of the last month have been bad for Telecom, there's no question about it, but I've been amazed that our customers have been very quick to criticise us, and so they should, so they should, but they’ve also I think appreciated that we've tried to go out of our way to be honest about what's going on, what we're doing about it, and also to make some amends financially when things have gone wrong. So you know people have been coming into us all this week, the system's still growing, we've been outselling our main competitor six to one, because customers are saying well okay, I know you guys will fix it, but you know I don’t like the coverage, I don’t like the service from the other guys, we're coming to Telecom. So I hate that this happened, I would much rather it didn’t, but we are continuing to grow.

PAUL So if I said to you have you experienced a big loss in your customer base?

DR PAUL No, we're increasing our customer base.

PAUL Are you the victim? Are you Paul Reynolds the victim of previous under investment by Telecom, going back ten fifteen years.

DR PAUL Well I've spent no time on history since I've been in Telecom, two and a bit years, what I have done is come to the job and say what do I think it needs for New Zealand to have a great position on fast Broadband, have a great position in mobile, and I said to the board it's gonna take us doubling the company's investment plans, and we doubled it, and Telecom New Zealand in the past three years, as a percentage of its revenue has invested twice as much as any Telco in the world. We're going through more change, more quickly than any Telco in the world which is why the country is now getting faster Broadband and more advanced services. I hate this failure. I hate it, but we are gonna fix it.

PAUL What about the Broadband roll out, the big 10 year Broadband, the high speed Broadband roll out that Stephen Joyce is looking at. Why should he give the contract the Telecom?

DR PAUL He should give it to Telecom because on the back of the last changes our chorus business has been rolling out fibre to the nodes the length and breadth of New Zealand, you know a Broadband in Wellington for example is now faster than Singapore, we used to be miles behind when they were getting ahead, we've hit every milestone on time, everything – the speed, the quality has got better, and the project management has been outstanding, nobody else comes close in New Zealand.

PAUL But what is the XT roll out, tell us about Telecom's ability to roll out new technology?

DR PAUL The XT roll out tells us that frankly we've been let down on a piece of our technology and we're gonna get it fixed.

PAUL How do you sleep at night at the moment?

DR PAUL I go to bed and go to sleep, it's a busy job, it's one of the biggest jobs in New Zealand, I love it, I love the job, and I'm going to get this right.

PAUL Is your bonus safe?

DR PAUL Well my bonus is gonna be affected by this of course, it's a performance bonus, we haven't done what we expected to do on XT so of course it's going to be affected by this.

PAUL Has the XT roll out been a seven million dollar performance by a CEO do you think?

DR PAUL I don’t know what you mean by this, where did you get seven million dollars from Paul?

PAUL It all adds up.

DR PAUL Look at the report in accounts.

PAUL Do you lie straight at night?

DR PAUL I lie asleep soundly.

ENDS

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