Telecom Contract Review Meeting by sqt10744

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									Corporate
Review 2010
02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials




The image on the front cover is of Chorus technicians working at the Tutaekuri River, near Napier.
Welcome,
to Telecom New Zealand’s 2010 Corporate                                             our company – effects that will be profound and long-lasting whether or
                                                                                    not the Government chooses Telecom as a main partner later this year.
Review. This document gives an overview, in
                                                                                    Whatever the outcome, Telecom will continue to communicate openly
largely non-technical language, of our company’s                                    and frankly with its shareholders and other stakeholders on the issues
progress during the 2009/10 financial year,                                         that matter to us, our industry and to New Zealand.
and follows the inaugural Review we published                                       This open approach was manifest throughout the XT service issues
                                                                                    earlier this year, and the actions we have taken since then, and it is
in 2009.
                                                                                    appropriate for the changing times ahead.
In common with last year’s Review, we start with commentaries from
                                                                                    Our thanks to all those who provided feedback on last year’s Review.
our Chairman and Chief Executive.
                                                                                    You’ll see we have taken much of it on board, most notably in the
Unlike last year’s document, the remainder of this year’s Review is                 extended financial information on page 39.
organised by theme rather than business unit. Under the three main
                                                                                    For a full set of financial information, and a detailed examination of all
headings of Broadband, Mobile and Information and Communication
                                                                                    aspects of our business, please go to our 2010 Annual Report, available
Technology (ICT). We look at what the company has achieved, the
                                                                                    at http://investor.telecom.co.nz
challenges we’ve faced and what our focus is for the coming years.
                                                                                    We welcome feedback from our readers, you can find contact details
In all of these areas, it is clear that the Government’s Ultra-fast Broadband
                                                                                    on page 44.
(UFB) project will have major implications.
                                                                                    Thank you for your involvement with Telecom.
Even as we press ahead with major investment programmes, in
particular the Fibre-to-the-Node (FTTN) rollout, Telecom is working hard
to participate in UFB and to understand and prepare for its effects on




                                                                                1
Chairman’s section

Dear shareholder
It has been another massive year for our                                     We talk regularly and candidly with all our stakeholders; politicians, at a
                                                                             central and local government level, consumer and industry groups, and
company, and for our industry. On a range of
                                                                             anyone else who has an interest in what Telecom is up to.
fronts we have worked hard to do the right                                   That open approach exemplifies the cultural change that has been very
thing: as an employer and investor, as a provider                            much part of Telecom’s transformation under Paul’s leadership.
of innovative services to our customers, as a                                It is about human attitudes as much as it is about complex technology
                                                                             and systems.
participant in important national debates,
                                                                             And we have achieved all of this against the backdrop of one of the most
and as a corporate citizen with a presence in                                intensively regulated telecommunications landscapes in the world.
communities throughout New Zealand.                                          Your company is in good shape, though big challenges and decisions
Highlights for Telecom in 2010 have included the very large increase         lie ahead.
in customer numbers on our XT network; a rigorous programme to               We have left no stone unturned in our approach to supporting the
reduce costs across our business; changes to board and executive             Government’s UFB vision, even as we have methodically continued
membership; and a refreshing of our company strategy to help us adapt        to improve the broadband technology New Zealanders already enjoy
to changing times.                                                           through our FTTN programme and associated activity. We submitted a
CEO Paul Reynolds and his executive colleagues have led from the             refined UFB proposal to Crown Fibre Holdings on 2 August 2010.
front in taking an open, transparent approach to fixing things when          In the past year we have welcomed Sue Sheldon onto our Board as an
they have, regrettably, gone wrong. Our reputation matters to us, and        Independent Director. Sue has an impressive record of directorships with
when it has been tarnished we’ve worked hard to put things right for         successful businesses, from the state sector through to the commercial
our customers and to explain publicly not just what we’ve done but why       sector, from small to large.
we’ve done it, too.                                                          She brings renowned governance expertise, focusing on finance,
                                                                             strategy and risk management.

                                                                         2
At our annual meeting on 30 September we will farewell Director                  “Given our proven
Rod McGeoch, who was appointed to our Board ten years ago. I thank
                                                                                  experience in
Rod for his long contribution throughout a period of profound change
for Telecom and wish him all the best for the future.                             New Zealand
At the executive table, we have seen the arrival of Chief Group                   telecommunications
Technology Officer David Havercroft, and the departure of Wholesale               we believe we are
& International CEO, and long-serving Telecom employee, Matt Crockett.
                                                                                  far and away the
Despite the uncertainty around the future industry structure under
UFB, we remain unshakeably committed to the delivery of our                       best partner for
Undertakings and achieving full equivalence – equal access to network             the Government’s
products for every service provider and internet service provider (ISP) in
                                                                                  UFB scheme.”
New Zealand. This delivery of equivalence has become one of the largest
IT programmes New Zealand has ever seen.
We have worked hard to put something back into local communities
and organisations, such as Women’s Refuge, the IHC and many others.

UFB
Given our proven experience in New Zealand telecommunications
we believe we are far and away the best partner for the Government’s
UFB scheme.
One of the requirements of the official tender process is that the
companies that build the fibre optic infrastructure do not also offer
services to end-users, such as retail and business customers.

                                                                             3
Chairman’s section | continued


This essentially stops Telecom, and other full-service telecommunications       We will continue to keep you, the owners of Telecom, informed as
companies, from being involved in the initiative unless they separate           we work through these very complex, industry-changing issues.
their businesses into two – one that builds and maintains access                Telecom’s dividend policy for 2011 will target a payout ratio of
infrastructure, and another that sells services to end-users.                   approximately 90% of adjusted net earnings, and is expected to
One way to align these goals is the structural separation of Telecom’s          be fully imputed.
network and retail businesses.
The refined UFB proposal we submitted to Crown Fibre Holdings on                Thank you for your support.
2 August 2010 includes the structural separation of Telecom, through
a demerger into two entirely separate companies.
Such a change to Telecom’s business would require a 75% majority of
the shares that are voted at the shareholder meeting to support the
demerger proposal.                                                              Wayne Boyd, Chairman
The Board’s position is clear: for us to proceed along the road of
structural separation, with all of the upheaval and expense that would
entail for us, the benefits would need to outweigh the costs.




                                                                            4
                                                                                                            02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
                                CEO’s section

                                Letter from the CEO
“Telecom New Zealand            The last year saw immense political and economic adjustment across
                                the world as economies began their hesitant recovery from the global
 has had another year of
                                recession. In New Zealand and overseas, consumers, businesses and
 achievement, and there         government agencies responded to the economic uncertainty by
 is much to report on           demanding far more from their technology suppliers, at lower prices.

 since we published our         Competition has intensified. In New Zealand there has also been a
                                significant increase in telecommunications industry regulation, to the
 first Corporate Review.”       point that we are now regarded perhaps as the most heavily regulated
                                market in the world.
                                The effect of this uniquely challenging environment for Telecom New
                                Zealand has been clear: in order to fund heavy investment in new
                                infrastructure and regulatory processes, new services and innovation,
                                whilst reducing prices overall in a market with no revenue growth, we
                                have needed to make a decisive strategic shift towards a reduction in
                                operating costs.
                                Overlaid on all of this, the New Zealand Government is pursuing its
                                policy of state-subsidised fibre to the home (FTTH), to deliver UFB. This
                                policy will fundamentally restructure the telecommunications industry
                                in New Zealand over the coming decade, as participation requires the
                                structural separation of Telecom’s retail and network businesses.
                                We have responded significantly and enthusiastically by building one of
                                the largest project teams in the company’s history to develop Telecom’s
                                bid for participation, as well as to propose a detailed redesign of the

                            5
CEO’s section | continued

industry structure and regulation and to evaluate the mammoth task of           the Government’s UFB project. Major challenges lie ahead and major
structural separation of the current Telecom New Zealand into two new           decisions, too, not least in the area of UFB.
and entirely separate companies.                                                In the meantime, we stay focused on our customers and delivering
It is pleasing that amidst all this change and uncertainty we delivered         for them through our refreshed strategy.
on our guidance to shareholders, with net earnings of NZ$382 million.
Further financials can be found on page 39 of this document.                    A refreshed strategy
                                                                                At its core, it is a strategy focused on cost reduction, simplification of
Telecom people have responded with great skill and determination and
                                                                                the way we do business and serve our customers, value retention and
have delivered another year of achievement, so there is much to report
                                                                                targeted growth.
on since we published our first Corporate Review. I am proud to lead this
team and I thank them for their efforts.                                        We are reducing costs by moving to a lean service provider model in our
                                                                                Retail and Gen-i businesses. We have cut discretionary spending across
Telecom’s delivery of our operational separation Undertakings,
                                                                                the Group.
with a couple of minor variations agreed with the Government, has
been faultless.                                                                 We have simplified our organisation already by restructuring, particularly
                                                                                in AAPT, Retail, Gen-i and T&SS, and we have thereby significantly
Through all of the past year’s up and downs, Telecom has continued
                                                                                reduced overhead.
to make a major contribution to the progress of the business in which
we all have a stake – ‘NZ Inc’. The work of our Wholesale and Chorus            We are very focused on retaining value by offering attractive new
businesses exemplified this.                                                    bundled services to our existing customers. We are taking great care
                                                                                to encourage high value customers coming ‘off-contract’ from our
Chorus builds and maintains the networks that are the backbone of
                                                                                old CDMA mobile network onto the new XT network, which offers
most telecommunications services in New Zealand. For its part, Telecom
                                                                                customers many new options and opportunities – and so much more.
Wholesale designs and provides a wide range of services for many
service providers, of whom Telecom Retail is just one. These services           And we are aggressively targeting growth areas in the corporate and
include interconnection, voice, backhaul and managed data.                      enterprise areas.

Telecom is proud of this contribution to the telecommunications                 This strategy will enable us to achieve our mission of becoming number
industry, and we have applied this same spirit to our approach to               one in broadband, mobile and ICT.

                                                                            6
                                                                                                                                                         02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
In each of these critical areas, what were some of the milestones of the       speed of around 13Mbps. Just how good is that? In South Korea,
past year, and what might lie ahead for your company?                          recognised as the world leader, the average speed experienced by
                                                                               customers is around 14.5Mbps.
Mobile
                                                                               Other significant developments include the offering of VDSL2
There are now over 700,000 customers on our XT network. We have
                                                                               broadband, enabling real world speeds of up to 40Mbps later this year.
put the service issues of earlier this year behind us, and have learned
from them. The independent report we commissioned into the outages             There is now a range of broadband speeds available at different price
stated that the XT technology was fundamentally sound and indeed               points. Increasingly, we are a match for anywhere else in the world.
world-class. Our ongoing programme of investment and upgrades will
                                                                               ICT
keep things that way.
                                                                               The unrelenting customer focus in our ICT business, Gen-i, has earned
We will keep bringing new devices, products and pricing plans to               it the highest customer preference scores in the New Zealand market
market, serving retail and business customers and encouraging New              according to IDC. As a result, there have been many important client
Zealanders to give XT a go. We have done all of that, and more, over           wins over the past year, including the New Zealand Fire Service, the
the last year. The rapid rise in customer numbers shows how well New           Department of Conservation, the Department of Corrections, Genesis
Zealanders have responded.                                                     Energy and the Ministry of Social Development.
I’m confident XT will come to be regarded as the world-leading network         The changes being made at Gen-i reflect the strategies in place across
it was built to be.                                                            our business as a whole: simplification, cutting cost, harnessing the
                                                                               power of our networks. Gen-i is also seizing new opportunities, notably
Broadband
                                                                               in the area of cloud computing.
Our FTTN programme, bringing fibre and improved electronics closer
to more homes, proceeded like clockwork. Over 2,000 roadside cabinets          UFB
have been installed by Chorus around New Zealand, emblems of                   We have worked hard to support the Government’s UFB vision and
Telecom’s achievement.                                                         have submitted proposals that draw on our enormous expertise and
A million homes and businesses whose connection has been upgraded              achievements, as demonstrated by the work of our Chorus business
through this programme, now have access to an average download                 since it was established more than two years ago.

                                                                           7
CEO’s section | continued


The economics of delivering fibre down every street and to every                      Decisions
doorstep are incredibly challenging, especially when the demand                       Telecom’s strategy addresses the hard decisions needed to secure the
patterns for the services this fibre could carry are far from certain. But it’s       long-term health of our company; decisions such as the identification
a conundrum that can be solved if we are all open to new ways of doing                of core and non-core assets.
things, and without wasting what has already been built.                              In recent weeks we have entered into a conditional agreement for the
On 2 August 2010 Telecom submitted an extensive, refined proposal to                  sale of AAPT’s consumer division to iiNet for A$60 million and to sell
Crown Fibre Holdings, reinforcing our commitment to partnering with                   our 18.2% stake in iiNet to institutional and sophisticated investors for
the Government to deliver a national fibre-to-the-home network that is                approximately A$70 million. These transactions leave AAPT with a strong,
both economically and physically enduring.                                            well positioned wholesale business.
We have also proposed integrating the UFB initiative with the Rural                   Following a strategic review of Telecom’s international wholesale
Broadband Initiative. Integrating the two would allow for the extension               business, we have separated it into its voice and data components.
of the reach of ultra-fast broadband into rural areas well beyond the                 We are now considering strategic options for the voice component
75% coverage area.                                                                    of this business. Options being considered include merger, divestment
Telecom has also argued, and will continue to argue, that the move                    or retention.
to a world of ubiquitous fast fibre also requires an equally far-reaching             Thank you for your ongoing support of Telecom through challenging
change in the regulatory environment, which was designed for a largely                and changing times. The coming year promises at least as much
copper-based world.                                                                   change. We will work hard to keep you informed of, and connected
We will continue to push this issue vigorously, as it has major implications          with, this process.
for encouraging further commercial investment in New Zealand.
The quality of New Zealand’s regulatory framework will continue to be
assessed by institutional investors before choosing whether to place
their capital here, and the decisions they make affect us all.                        Paul Reynolds, CEO


                                                                                  8
                                                                                                                                                                    02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Meet the Executive Team
Paul Reynolds, CEO Telecom Group: Paul has been CEO of the Telecom                  including Bell Gully, Clifford Chance, Mallesons Stephen Jacques and
Group since September 2007. His passion for customers underpins his                 Gilbert & Tobin. He then joined Vodafone Group PLC, where he held a
approach to help Telecom become the most customer-focused business in               number of senior leadership positions, including Legal and Regulatory
New Zealand. He has held senior executive roles in the telecommunications           Director – Asia-Pacific Region and Governance Director – Europe Region.
industry for over 20 years. Before joining Telecom he was CEO of BT
Wholesale, one of Europe’s largest and most successful telecommunications           Alan Gourdie, CEO, Retail: Alan joined Telecom in August 2008 as CEO
wholesale businesses, with annual revenues at the time of £8 billion and            of Telecom Retail. He is responsible for driving Telecom’s commitment
13,000 employees. Paul played a central role in BT’s transformation and             to improving the experience of Telecom consumer and small and medium
held executive responsibility for its technology and operations. Paul has           enterprise (SME) customers and has executive responsibility for Telecom’s
also served as a director on a number of boards, including BT and xConnect          brand.
Networks in London, and eAccess in Japan. He received the ‘Global Icon’             After starting his career as a research and development chemist at Reckitt
award from the Telecommunications Industry Association of America in 2006.          and Colman, Alan moved into brand management and started a long and
In 2008 Global Telecoms Business magazine awarded him its Editor’s award            successful marketing career.
for personal contributions to telecommunications.
                                                                                    He took on a senior marketing role at DB Group, eventually becoming the
                                                                                    General Manager Marketing for the brewing business. This led him to a
Tristan Gilbertson, Group General Counsel: Tristan was appointed
                                                                                    number of roles offshore, including a stint as Global Marketing Manager for
Group General Counsel in July 2008. He leads Telecom’s Group Legal and
                                                                                    Heineken and leading the operations for Asia Pacific Breweries. Immediately
Corporate Services team and is responsible for legal services, internal
                                                                                    prior to joining Telecom, Alan worked in London as Managing Director of
audit, risk management, compliance, corporate governance, public policy
                                                                                    Asia Pacific Breweries’ UK and European operations.
and regulatory affairs. He also oversees the Independent Oversight Group
Support Office.
                                                                                    David Havercroft, Group Chief Technology Officer: David joined
Tristan is a highly experienced corporate and commercial lawyer with                Telecom in October 2009 and was promoted to the Telecom Executive
extensive international experience in telecommunications law and                    team in April 2010 as Group Chief Technology Officer. He is responsible for
regulation. He began his career as the Wellington High Court Judges’ Clerk,         Telecom’s network and IT operations throughout New Zealand, ensuring
before going on to practice law with several leading international law firms,       its IT, infrastructure and architecture are aligned with the Group’s business


                                                                                9
       Meet the Executive Team | continued




                                             Tristan Gilbertson        Alan Gourdie




                       Russ Houlden
                                                                                      Mark Ratcliffe




Paul Reynolds

                                                                  10
                                                                                02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
             Rod Snodgrass   Wayne Peat      David Havercroft




Chris Quin
                                          Tina Symmans

                                                                Matt Crockett

                                   11
Meet the Executive Team | continued


objectives. In addition to the core technology teams, he oversees the                 in New Zealand, Australia, Asia and the UK. Prior to his roles at IBM, Wayne led
shared business operations which support Telecom in accounts payable,                 and developed the Human Capital practice for Mercer HR Consulting in both
provisioning, credit and billing, employee services, corporate property and           New Zealand and Singapore.
information management.
UK-born, David has more than 25 years’ experience in the                              Chris Quin, CEO, Gen-i: Chris was promoted to the Telecom Executive in
telecommunications industry in Europe and Asia Pacific, with previous                 April 2008 as CEO of Gen-i, where he is responsible for delivering converged
executive roles in business and technology functions in major                         technology and telecommunications solutions to large and medium
telecommunications operators and in professional services and technology              business customers across New Zealand and Australia.
organisations. David has designed and led major change programmes                     Chris was General Manager of Gen-i New Zealand for four years before
focused on revenue growth, cost efficiency, network rollouts and ongoing              becoming CEO. Prior to that he held roles with Telecom in finance, sales and
management of insourced and outsourced operations.                                    service delivery. Before joining Telecom in 1991, Chris was Chief Financial
                                                                                      Officer for Mitel and a financial accountant at Orica (formerly ICI). He sits on
Russ Houlden, Chief Financial Officer: Russ joined Telecom in April 2008              the boards of the NZ ICT Group, ICE HOUSE business incubator, and New
and leads Telecom’s finance teams. On 18 May 2010 Russ announced his                  Zealand Centre for Social Innovation. In July 2010 Chris was awarded an
resignation from Telecom, effective 30 September 2010.                                Emerging Leadership Award at the Sir Peter Blake Leadership Awards.

Wayne Peat, Group Human Resources Director: Wayne joined Telecom                      Mark Ratcliffe, CEO, Chorus and Executive Lead, Telecom’s UFB
in May 2009. Wayne is responsible for the human resources function, which             Programme: In March 2008 Mark became CEO of Chorus, Telecom’s
oversees and develops strategies and policies to ensure that Telecom people           operationally separate business unit that manages the telecommunications
can effectively contribute to achieving the company’s goals.                          infrastructure and gives service providers equal access to the local network.
Prior to joining Telecom, Wayne was based in Singapore as Vice-President and          In May 2010 Mark was seconded to lead a team focused on Telecom’s
Partner fro IBM’s Human Capital Management Practice, with responsibility for          participation in the Government’s UFB initiative.
the development and delivery of effective HR solutions for clients across 130         Mark has worked for Telecom for the past 19 years, commencing originally
countries, in six key growth markets, leading a team of around 300 consultants        in the finance department before moving into various marketing, product
and has more than 25 years’ experience in consulting and senior management            development, product management and IT roles. He was promoted to the

                                                                                 12
                                                                                                                                                                       02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Telecom executive team in 1999. At various times during his career he has              Tina Symmans, Corporate Relations Director: Tina joined Telecom in
also had executive responsibility for aspects of Telecom’s Australian business.        June 2008. She leads the Corporate Relations team that manages Telecom’s
Mark fully supports delivering a competitive wholesale market for Telecom’s            media and public relations, Group internal communications, and government
products and services. It was this belief that led him to volunteer to lead the        and community relations.
negotiations with the Government around operational separation and to                  Tina has extensive experience in marketing, corporate relations and strategic
take on the role of leading Chorus, and subsequently to lead the Telecom               communications, and has held a variety of senior roles with leading
UFB project team in its discussions with the Government.                               New Zealand companies in the capital markets, banking, ports, transport,
                                                                                       energy and agriculture sectors. Tina also founded and managed a successful
Rod Snodgrass, Group Strategy Director: Promoted to the executive team                 strategic communications and government relations consultancy, and has
in January 2008, Rod drives the development of Telecom’s group strategy                been providing independent advice to large New Zealand businesses
with the aim of optimising Telecom’s portfolio of businesses and initiatives,          for many years. She is currently a Director of PSIS Limited and Turners
including group corporate development and strategic partnering, and                    & Growers Limited.
helping to coordinate Telecom’s transformation and growth agendas.
Rod joined Telecom in 1998 after seven years in various strategy, business             Executives in acting roles
development and commercial roles in the oil and gas exploration and                    Brian Hall, Chorus’ Finance Director, is acting CEO of Chorus while Mark
production industry. Rod has held a number of roles within Telecom, including          Ratcliffe is on secondment to Telecom’s UFB project team.
GM of the Wired Division and of Xtra, Telecom’s online division, and before            Nick Clarke, General Manager, Wholesale Marketing is acting CEO,
that a number of financial, commercial and business development roles.                 Wholesale and International while a new CEO of Wholesale and International
Rod has a bachelor of Commerce and Administration from Victoria                        is being recruited.
University of Wellington and is also a qualified Chartered Accountant. Rod is
a Director of Yahoo!Xtra New Zealand Limited and Hutchison 3G Australia Pty            Executives who retired during the 2010 financial year
Limited. He is also a trustee of the Springboard Trust, a not-for-profit social        Matt Crockett, CEO, Wholesale and International
venture organisation.                                                                  (resigned from Telecom effective 30 June 2010).
                                                                                       Frank Mount, Chief Transformation Officer
                                                                                       (resigned from Telecom effective 23 February 2010).

                                                                                  13
Meet the Board
Wayne Boyd, Chairman: Wayne has a significant background in law and              Sue Sheldon
merchant banking. He is the current Chairman of Freightways Limited,
Meridian Energy Limited and Vulcan Steel Limited, and former Chairman
of Auckland International Airport Limited and the South Island Interim
Development Group, which was charged with the establishment of Meridian
Energy Limited.
Wayne has a keen interest in the community and has been involved in
organisations as a Director of Sports and Recreation New Zealand and
Chairman of both New Zealand Blood Service Limited and the New Zealand
                                                                                               Rod McGeoch
Hockey Federation.

Murray Horn: Murray chairs the Government’s National Health Board
Advisory Board and its Capital Investment Committee. Murray previously
held a number of senior executive roles with ANZ Banking Group, including
leading the group’s New Zealand operations. He was Secretary to the
New Zealand Treasury and served on a number of boards, including the
New Zealand Tourism Board. He has represented New Zealand at the
OECD, as a Governor at the World Bank and as an Alternate Director at the
International Monetary Fund.
Murray received his doctorate from Harvard University in 1989 and has
been awarded a number of academic honours in both New Zealand and
the United States.




                                                                            14
                                Ron Spithill
                                                                   Sachio Semmoto




     Murray Horn



15
                                                                       Kevin Roberts



                                                      Wayne Boyd




                   02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Meet the Board | continued


Rod McGeoch: Rod has been on the Telecom Board since 2001. During                 Academic Society for Ventures and Entrepreneurs, JSAVE, and a Director
this time he has chaired and been a member of various board sub-                  and trustee of Reuters Founders Share Company, board member of the
committees. Most recently, he was Chair of the Board’s human resources and        University of Florida Foundation, member of the Network of Global Agenda
compensation committee. Rod is standing down from the Board at the 2010           Councils, World Economic Forum and a foreign member of the Royal Swedish
annual meeting.                                                                   Academy of Engineering Science.

Paul Reynolds: Go to page 9 for information on Paul Reynolds.                     Sue Sheldon: Sue is a professional company Director and is currently a
                                                                                  Director of Contact Energy, Freightways, Smiths City Group, Paymark, Wool
Kevin Roberts: Kevin has extensive international experience in brand,             Grower Holdings and the Reserve Bank of New Zealand.
marketing and customer satisfaction and is CEO for Saatchi & Saatchi              Prior to moving into the professional director role, Sue practiced as a
Worldwide. He is a private sector ambassador to the New Zealand/United            Chartered Accountant. She is a former President of the New Zealand Institute
States Council and in 2006 was appointed Chairman of the USA Rugby Board.         of Chartered Accountants and was made a Companion of the New Zealand
Previously Kevin held senior management and marketing positions with              Order of Merit for services to business.
Procter & Gamble, Pepsi-Cola and Lion Nathan. He has undertaken pro-bono
                                                                                  Sue has previously held directorships in Meridian Energy, Ngai Tahu Holdings,
work for the Antarctic Heritage Trust, co-founded New Zealand Edge and
                                                                                  Christchurch International Airport and Asure New Zealand, and is the former
served on the New Zealand Rugby Football Union Board. Kevin is also a
                                                                                  Chair of the National Provident Fund. She has extensive experience as both
trustee of the Turn Your Life Around Trust.
                                                                                  chair and member of audit and risk committees. For some years Sue has been
                                                                                  involved with the governance of Girl Guiding New Zealand, the leadership
Sachio Semmoto: Sachio is an entrepreneur in the telecommunications
                                                                                  organisation for girls and young women.
industry, spending 30 years in senior management positions in companies
including Nippon Telephone & Telegraph, Kyocera, and DDI Corporation
(now KDDI), which he co-founded as an Executive Vice-President in 1984.
Sachio also founded leading broadband IP operator eAccess Limited and
is currently Chairman and Representative Director of the fifth company he
founded, EMOBILE Limited. Sachio is a co-founder and trustee of the Japan


                                                                             16
                                                                                     02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Ron Spithill: Ron is a Director of the Glaucoma Council of Australia and Good
Beginnings Australia, and has been appointed as an Expert Panel Adviser for
the Singapore Government.
Ron has an extensive background in the telecommunications industry.
He was previously President of Alcatel Asia Pacific, Executive Vice President
and Chief Marketing Officer of the Paris-based Alcatel Group and Vice-
Chairman of Alcatel Shanghai Bell. He has been Chief Executive Officer and
Chairman of Alcatel Australia and been Chairman or Director of eight other
Alcatel group companies in Asia. Ron has been an adviser to a number of
governments, including those of Malaysia and China. He is a former President
of the Telecommunications Industry Association of Australia. He was made
a Distinguished Fellow of the Telecommunications Society of Australia in
2003 and a Fellow of the Australian Academy of Technological Sciences and
Engineering in 2007.




                                                                                17
Broadband
            A chorus van in Paparoa
            village, Northland.




     18
                                                                                                            02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Over the past year the broadband experience of New Zealanders has
improved significantly, underpinned by Telecom’s major investments in
networks, technology and services.
Independent surveys and benchmarks have measured the gains that have
been made and show that in international terms New Zealand is by no
means the poor cousin in broadband performance.
Telecom can take a lot of the credit for this turnaround, as the huge
investment programme of the past three years bears fruit. Our principled
support for the Government’s UFB scheme shows our willingness to go even
further to make the most of this important technology.
Turning on to broadband
New Zealanders are using broadband in greater numbers than ever before – at last count Telecom provided
just under one million fixed line broadband connections in a country of only 1.8 million telephone lines.
Among OECD countries, the most recent survey shows we have the fifth-fastest growth rate of
broadband connections.




                                  19
Broadband | continued


Directly and indirectly, Telecom plays a major role in facilitating this growth.        Chorus’ initiatives are shortening the local ‘loop’ and creating a
Telecom Retail has more than 500,000 broadband customers, and our                       springboard for customers to benefit from ongoing advances in
Wholesale business helps to provide the underlying network                              broadband technologies, many of which involve the copper lines the
connectivity that allows non-Telecom internet ISPs to provide ever more                 network was traditionally built on.
innovative broadband services to their end-users.                                       The programme has gone ahead like clockwork, a testament to the drive
Chorus field service technicians visit more than one million homes and                  and skill of the men and women led by Mark Ratcliffe. We are working
businesses each year to install or repair phone or broadband services for               hard to see how this same skill and energy might be harnessed in
a range of telecommunications providers.                                                support of the UFB project, in ways that make the most of what Telecom
                                                                                        has already achieved for New Zealand.
FTTN                                                                                    Around half of homes connected to the new cabinets are within 500
The building block for much of this activity and progress is Telecom’s                  metres of our fibre optic cable network and 90% are within 1km.
Fibre-to-the-Node (FTTN) programme.
                                                                                        This means the new fibre-fed cabinets will act as a springboard for all
When the first edition of this Corporate Review was published, the                      service providers to deploy copper-based VDSL2 broadband equipment,
programme was in its early days. Now, more than a year on, it has passed                and fibre-to-the-home, offering even greater speeds for customers
the half-way mark.                                                                      connected to cabinets.
Things are humming along. Our Chorus business has now installed close                   These service providers include not just Telecom’s Retail business, but
to 2,100 roadside cabinets, or nodes, around New Zealand.                               other ISPs from across the industry.
These cabinets have brought the fibre and sophisticated electronics that                Old myths about New Zealand being a broadband laggard on the
support high-speed broadband, both fixed and mobile, closer to many                     world stage have been undermined by this programme, as Telecom’s
New Zealanders, whether or not they are direct customers of Telecom.                    investment and facilitation of services comes on stream.
By the end of next year some 750,000 customers will be directly
connected to the faster fibre-fed cabinets.


                                                                                   20
                                                                                                                                                              02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
                                                                                  Mobile broadband
                                                                                  New Zealanders, whether they are residential customers or in business,
                                                                                  increasingly want broadband on the move, too. We live in a mobile
                                                                                  world. That’s why our XT network, bringing 3G (third generation) mobile
                                                                                  services to just about everywhere in New Zealand where people work
                                                                                  and live, is a key part of Telecom’s strategy for growth.
                                                                                  Telecom’s XT network has been engineered to support the exponentially
                                                                                  increasing customer demand for mobile data services, including access
                                                                                  to work and personal email and the internet.
                                                                                  More than 85% of our XT mobile sites are already connected to fast
                                                                                  backhaul, another example of how Telecom is already understanding
                                                                                  and harnessing the power of fibre for the benefit of New Zealanders.
                                                                                  This fibre connects many hundreds of mobile sites to the sophisticated
                                                                                  electronics at the heart of Telecom’s network, supporting the delivery of
                                                                                  ever-faster broadband over our customers’ mobile handsets.
Downer technicians Lyn Letica and Lester Hewitt work on a Dunedin cabinet.
                                                                                  Recent developments, such as HSPA+, mean that mobile broadband
                                                                                  is not only ubiquitous – it is fast, too.




                                                                             21
“Basically…my
 job is to ensure
 our customers are
 consistently getting
 a really high
 standard of service.”
Cindy Duck,
National Lead for Quality,
Chorus




Cindy attends a training session with
Visionstream Field Managers.
                                                                                                                                                                  02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Our people


“Driving every individual to deliver”
Cindy Duck, National Lead for Quality, Chorus                                        “I’m lucky, because my experience managing the broadband helpdesk
                                                                                     within Telecom Retail means I have a unique insight into this process,
Cindy has been with Telecom for close to 14 years and has worked in
                                                                                     and I’ve seen first hand the importance of up to date information.”
a number of roles around the business.
                                                                                     After 13 years working in Telecom Retail, Cindy said she’s also enjoying
Last September, she moved into Chorus to take on the newly created
                                                                                     a change.
role of National Quality Lead, meaning Cindy is tasked with leading
quality assurance across Chorus’ network.                                            “Chorus has a great atmosphere, and with only around 260 people
                                                                                     within the business everyone knows everyone. It’s like being in a small
“Basically that means my job is to ensure the service providers, who are
                                                                                     company with all the benefits of a large one.”
our customers, are consistently getting a really high standard of service.
A key part of this is working with our service company partners to ensure            One of the aspects of Chorus that Cindy enjoys most is the ‘heartbeat’
that the quality of our field activities is consistently high, nationwide.”          meetings held every morning at 8.45am.

To help enable this, Cindy has developed a ‘quality improvement council’             “Everyone is invited to attend these meetings, which are led by the
that includes the Quality Leads from Chorus’ service company partners                field operations team. What I really like is that they are future-focused.
Downers, Transfield, Visionstream, and Chorus itself.                                We discuss what we achieved last week but focus on the upcoming
                                                                                     week and how we are going to achieve what we need to.
“We get together to discuss how effective the processes are – something
that was not possible previously, and we all love the fact it’s face-to-face,        “With the huge amount of work under way it’s a great way to keep us
so we can bounce ideas off each other. We now have an annual Quality                 all focused on the key things we’re trying to achieve together.”
Assurance Plan in place with all the service companies, which drives
every individual to deliver.”
Another one of Cindy’s goals is to improve communication between the
front office, the technicians and dispatch.




                                                                                23
Broadband | continued


A necessary pause
To help manage our workload, and in particular to ensure we are
minimising work that might ultimately be rendered redundant by UFB,
we have asked the Government and the industry for a ‘pause’ in
some important areas of activity with respect to our Undertakings
on operational separation.
In formal terms, this pause would follow from a ‘Variation’ to
our Undertakings.
We have asked the Minister to consider a variation on three components
of Telecom’s Undertakings that we believe will no longer be relevant in
a fibre future.
The proposed changes, which the Minister is now consulting the
industry on, are:
•	 Suspension of the forced bulk migration of existing broadband
   customers onto a new copper-based broadband service. Telecom will,
                                                                                A Chorus van crossing Adelaide Road in Newtown, Wellington.
   however, continue to supply this new broadband service to all new
   customers
•	 Removal of the requirement for Telecom to migrate 17,000 customers
   onto a new voice over internet protocol (VoIP)-over-copper service by
   the end of this year
•	 Removal of the requirement for Telecom to build a new set of
   wholesale systems that are not consistent with the industry structure
  implied by UFB.
                                                                           24
                                                                                                                                 02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
                                                            This request for a pause does not mean Telecom has gone cold on
                                                            its fundamental commitments to the Undertakings on operational
                                                            separation. Neither does the request affect in any way the ongoing
                                                            rollout of our FTTN programme, which epitomises so much of the
                                                            company’s progress over the last year.




Visionstream technicians Alan Spray and Kevin Hayes.




                                                       25
Mobile
          Chorus technicians driving over
          the Clyde river, on Earnscleugh Rd,
          Central Otago.




     26
                                                                                                           02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Mobile customers in New Zealand are benefitting from Telecom’s huge
investment in networks, associated technology and services.
XT is a nationwide 3G network offering leading-edge capabilities and
services delivered over fibre, smarter devices and simpler pricing bundles –
all of which are available to our retail and business customers.

The XT mobile network was launched in May 2009 and has enjoyed a rapid rise in customer numbers.
There are currently more than 700,000 customers connected to the network. It is testament to the overall
performance of XT that the momentum of this growth was hardly interrupted by the outages affecting parts
of the network in late 2009 and early 2010.
These service issues were a setback but they have not undermined the fundamental proposition of XT.
We learned from the experience, and have acted on all of the recommendations of the independent report
we commissioned from Analysys Mason Group (AMG).
The AMG report stated that XT’s underlying technology was sound, and built to world-class standards.
This endorsement, in combination with the work we’ve carried out on the network since the beginning
of this year, has helped to underpin our confidence in asking New Zealanders to give XT another go.




                                  27
Mobile | continued


Perhaps the most significant mark of confidence, however, is that even
during the height of the service issues, only very small numbers of
XT customers chose to go to other networks. In short, customers stuck
                                                                                                                                                         More
by us.                                                                                                                                                   choice
The network now has more capacity and resilience built into it and is                                                                                    More fun
performing as it should. An ongoing programme of investment was in
place anyway to ensure the network’s performance kept pace with the
rapid increase in the number of New Zealanders choosing to use it.
Since launch, we have been steadily upgrading and fine-tuning the
configuration of our mobile sites around New Zealand. This work is
ongoing, giving our mobile users a more consistent experience when it
comes to coverage, speed and reliability.
There is also the reality that New Zealand consumers have more choices
in front of them than ever before when it comes to mobile providers
and services.
This competitive dynamic has spurred Telecom to keep innovating in
the areas of products, devices and pricing – the factors that collectively
shape a customer’s decision on what network to use, and how they
might use it.                                                                     Gen-i is leveraging the benefits of XT by delivering converged fixed and
The innovation is reflected in the offerings of our Gen-i and Retail              mobile solutions to give its clients new levels of efficiency, productivity
businesses, which between them look after hundreds of thousands of                and cost advantages, and new, innovative ways to communicate and
corporate, small business and residential customers around New Zealand.           collaborate with their people and their clients.


                                                                             28
                                                                                                                                                             02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
SMEs are discovering the benefits of XT as well. Over half of Telecom’s            We have reduced and simplified the number of mobile pricing plans we
SME mobile customers are now connected to the XT network.                          offer, including those covering the charges faced by our customers when
They are taking up a range of plans tailored specifically to benefit small         they roam overseas on other networks.
businesses, such as the ‘Business One Rate’ plans, a suite of simple               Other major enhancements include HSPA+ technology, offering
plans for one mobile, and the ‘Business Share’ plans, a series of plans for        potential download speeds of 21Mbps to our XT customers. According
multiple mobiles.                                                                  to the GSM Association just 16 of the 325 mobile networks around the
It is a fast-moving environment. Notable innovations Telecom has                   world have 21Mbps in service, let alone available nationwide.
brought to the New Zealand market in 2010 include per-second billing,              In line with our refreshed strategy, we are also giving customers from
and exclusive device offerings such as Motorola’s ‘Android’ phone.                 our old CDMA mobile network compelling reasons and opportunities to
There is continued interest in smartphones and in phones using the                 migrate onto the XT network, well in advance of the planned closure of
Android mobile platform. Telecom’s Android-powered handset range will              CDMA around two years from now.
continue to grow and help even more customers take advantage of the                The CDMA network has provided sterling service to Telecom’s customers
benefits of XT.                                                                    for around ten years, but has now been eclipsed by new 3G technologies
A range of WAP content is provided for mobiles across the CDMA and                 and the reality of a market that has changed hugely. You can expect
XT networks, including news and entertainment, video clips and a music             more communication about the closure of CDMA in coming months.
store for downloadable music tracks.
Simplicity is key to ensure the provision of ever more powerful and
sophisticated mobile services is easily understandable, and therefore
accessible, for our customers.




                                                                              29
Our people


“How can I help you?”
Desmond Carey, Telecom Store Manager,                                            Des admits that the start of this year was a challenging one for the team
                                                                                 – the various XT issues meant that it was even harder to retain customers
Invercargill
                                                                                 than acquire new ones.
Desmond, or Des as he’s known to his mates and customers, has been
                                                                                 “However, we were up front and honest with customers, acknowledging
managing the Telecom store in Invercargill for 10 years – and he’s hoping
                                                                                 the issues and giving them as much information as possible while we
he’ll continue to do so for many more; in fact, he’s got his eye on that
                                                                                 worked to stabilise the network, and the majority of our customers stuck
traditional gold watch for long service!
                                                                                 with us.”
“I get the best of both worlds in my job – managerial duties and face-
                                                                                 When you talk with Des, you hear the word ‘education’ a lot. That’s
to-face time with customers. It’s an incredibly rewarding job and no one
                                                                                 because Des feels they have as much of a teaching role as a selling role
day is the same.”
                                                                                 to play.
During his 10 years with Telecom, he’s seen many positive changes to
                                                                                 “The industry we work in is fast-paced and ever-changing. Our role is
business systems and processes.
                                                                                 to ensure that we re-educate ourselves and our customers as things
“These changes have made a huge difference to our team’s ability to              change. There’s nothing better than the moment when you see the light
help our customers ‘right here, right now’, which makes our jobs easier,         switch on for people.”
and I know customers really appreciate it.”
                                                                                 So how does Des see the future?
In a city like Invercargill your reputation precedes you – it’s a small
                                                                                 “More customers; more great products and services; more excitement –
community and word travels quickly. This means that Des and his team
                                                                                 the day it stops being exciting is the day that I’ll move on. In 10 years, not
of seven have to ensure that every customer interaction is a good one.
                                                                                 a day has gone by that I haven’t been excited by my job.”
They do this by making ‘going the extra mile’ the norm, rather than the
exception. It’s not unusual for Des and his team to make home visits to
customers to set up a device or to drop something off.




                                                                            30
                          02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
“In 10 years, not a day
 has gone by that
 I haven’t been excited
 by my job.”
Desmond Carey,
Telecom Store Manager,
Invercargill
ICT   Gen-i’s Matt McLay tracking
      freight movement online in the
      Mainfreight loading dock.
                                                                                                                02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Gen-i is Telecom’s dedicated ICT business, with a simply-expressed goal:
to become Australasia’s leading and most preferred ICT services provider.
2010 was another year of far-reaching change for Gen-i and its nearly
3,000 people across New Zealand and Australia, led by CEO Chris Quin.
The business faced the challenge of tailoring services and solutions for
clients who were themselves feeling the strain of the economic recession
and were therefore focused on reshaping their own business models and
cutting costs. At the same time, Gen-i has participated in Telecom’s own
transformation and helped to bring life to our refreshed strategy.

ICT is also an intensely competitive sector, with the competition coming not just from other
telecommunications providers but large, multinational providers with enormous resources behind them.
Gen-i’s suite of products and services is a large one, including managed voice, data, mobile and IT services,
IT outsourcing and professional consultancy services. Collectively, these are the services that keep a large
chunk of New Zealand business, private and public sector, up and running, including businesses with
significant trans-Tasman activities.




                                    33
ICT | continued


Major challenges for Gen-i in the past year included the service issues we            While ‘cloud computing’ is something of an industry buzz phrase right
had with XT. At Gen-i these were met through a combination of regular                 now, it is undeniably a growth area, and one that also harnesses the
and open communication with customers at the height of the crisis,                    virtually limitless capacity offered by fibre.
and keeping attention focused on the real power and potential of XT as                The ‘cloud’ is essentially a collection of services that a business is able to
the best mobile network on offer in New Zealand, through the delivery                 access and use remotely – via the internet – in contrast with traditional
of converged solutions that address the key challenges faced by clients.              need for a business to install huge quantities of very expensive ICT
It is pleasing that major clients have, by and large, chosen to stick                 equipment in-house.
with XT as their preferred mobile solution. Examples include Fonterra,                The cloud is, in essence, powered by fibre. Gen-i is already using
Freightways, Contact Energy and Toyota New Zealand.                                   Telecom’s 25,000km of fibre – far and away the largest network in New
Earlier this year, Gen-i won the accolade of ‘most preferred’ vendor in its           Zealand – to deliver innovative solutions to its clients.
sector in New Zealand. This status is reflected in Gen-i’s wide client roster,        Gen-i is now transforming its business as part of a process to focus
which encompasses over 3,000 private and public sector organisations,                 on what its clients’ value, simplify its business and reduce costs. It will
covering such industries as banking and finance, energy, government,                  continue to execute the process, structural and cultural changes needed
healthcare and rural services.                                                        to deliver its future hosted services and integrated solutions propositions
Significant client wins in 2010 have included Air New Zealand, Foodstuffs,            for clients.
New Zealand Lotteries, Rugby New Zealand 2011, FleetPartners
and Ticketek.
As with the rest of Telecom, Gen-i has also embarked on a transformation
based on simplification, cost reduction, value retention and targeted
growth. Key areas of opportunity include growth of XT, now that the
network’s service issues are well behind us, cloud services, trans-Tasman
services and the Australian mid-market.


                                                                                 34
                                                                                             02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
                 Retail
                 Telecom’s ICT offering, and the role it plays in our strategy for growth,
                 is not just relevant to the large corporate and enterprise customers
                 catered for by Gen-i. In the New Zealand market the vast majority of
                 businesses are small employers, many of whom have relationships with
                 our Retail business.

Gen-i            These small businesses are becoming increasingly interested
                 in bundled and online services, including software-as-a-service
cloud            (SaaS) offerings.
                 Similar to cloud computing in the corporate space, SaaS provides SMEs
computing        access to applications and services hosted by Telecom. This enables SME
                 customers to essentially outsource the management of their IT software.
                 Telecom Retail’s ‘Total Office’ product was launched in July 2009 and
                 bundles fixed line access, broadband, call minder and a choice of other
                 smart services used by SME customers, such as call waiting. It has been
                 well received by SMEs.




            35
                        “There is nothing
                         better than knowing
                         you have made a
                         positive difference
                         to how a business
                         operates.”
                        Imogene Lomax,
                        Trans-Tasman Business
                        Development Manager,
                        Gen-i




 Mainfreight’s Logan
  Lim picking out an
order for a customer.
                                                                                                                                                                   02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Our people


“Making the complex simple”
Imogene Lomax, Trans-Tasman Business                                                 “IT decisions used to be a lot less complex, but now there are so many
                                                                                     options out there for people that it can be incredibly confusing and
Development Manager, Gen-i
                                                                                     sometimes daunting.
The fact that Imogene Lomax loves her job is hard to miss.
                                                                                     “Should they look for capability offshore or onshore? Own their own ICT
“I feel incredibly privileged to be in the role that I’m in. There is nothing        elements or invest in the cloud? Which vendor is best as they all appear
better than knowing you have made a positive difference to how                       to do similar things? There is no black and white answer. But it is our job
a business operates or services its customers, and that is what we are               to look at all the elements and investigate the best solution for each
all about – making a difference by making the complex simple                         client. I am seeing more and more that clients are less concerned with
and relevant.”                                                                       cost, than cost effectiveness, and in fully leveraging an investment once
Born and bred in Christchurch, Imogene began her career with Gen-i                   the decision is made.”
as a commercial analyst for the South Island sales leadership team. Two              Imogene has worked with Mainfreight, Foodstuffs, Antarctic NZ, Tait
years ago she made the decision to move north to Auckland and took                   Electronics and FleetPartners to name just a few. She loves the fact that
up the position of a Trans-Tasman Client Manager.                                    she has access to a variety of people across these businesses, from
In Imogene’s eyes, her role is to ensure Gen-i makes ICT solutions                   senior management, to IT and operational staff.
relevant and cost effective to a client’s business, which in turn makes              Recently, she and her team worked with Mainfreight to enhance a
their decision making simpler.                                                       key ICT solution to maintain Mainfreight’s competitive advantage of
                                                                                     delivering supply chain ’visibility and velocity‘.
                                                                                     “It is incredibly important to Mainfreight and their clients that they have
                                                                                     visibility of where their goods are at any point in time. So we
                                                                                     implemented a solution using XT mobile technology and scanner
                                                                                     devices that integrate with Mainfreight’s key applications to allow goods
                                          Dennis Morar checking
                                          where he needs to deliver the              to be tracked at any point in time – simple, yet effective!”
                                          freight loaded onto his truck.

                                                                                37
Chorus technicians scooting alongside
Lake Dunstan, Central Otago.




                             38
                                                                                                                                                            02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Financials
Telecom’s financial results for 2010 met the                                       Net earnings for 2010 of NZ$382 million were NZ$18 million lower
                                                                                   than 2009 due to the effects from operating activities above,
guidance given to the market despite an
                                                                                   NZ$20 million of lower financing costs and NZ$11 million of higher
increasingly challenging operating environment.                                    tax charges.
Due to a strong focus on cost control, adjusted                                    Telecom has maintained a strong balance sheet during the
earnings before interest, taxation, depreciation                                   recent recession, and has continued to invest over NZ$1 billion per
                                                                                   year in capital investment in transformation, regulation and business-
and amortisation (EBITDA) was flat year on year.                                   sustaining initiatives.
The challenging operating environment stems from increased regulation              Telecom expects the operating and regulatory environment to remain
and competition, and the impact on Telecom of the global trend of                  challenging, and during 2010 Telecom lowered its future expectations
decline in revenues from traditional offerings, such as calling and access.        for revenue and growth as focus moves towards retention and targeted
This led to revenues declining by NZ$367 million, or more than 6%, year            growth, along with cost reductions and business simplification.
on year. This was partially offset by the strong focus on removing cost
                                                                                   Telecom also faces uncertainty in relation to the Government’s UFB
from the business, with operating expenses reducing by NZ$337 million
                                                                                   and Rural Broadband Initiatives including the potential for structural
when compared with 2009.
                                                                                   separation. Telecom is constructively engaged in working with the
Telecom is also investing heavily to position the business for future              Government on both initiatives.
opportunities, such as growth in mobile and the ICT market.
This investment saw increased depreciation and amortisation charges
in 2010 of NZ$115 million, or 12.5%, due to Telecom’s overall higher
asset base.




                                                                              39
Income statement
For the years ended 30 June 2010 and 2009
YEAR ENDED 30 JuNE                                      2010      2009
(DOLLARS IN MILLIONS, ExCEpT pER SHARE AMOuNTS)         NZ$M      NZ$M

Operating revenues and other gains
  Local service                                         1,022     1,049
  Calling                                               1,003     1,239
  Interconnection                                        178       177
  Mobile                                                 826       822
  Data                                                   642       652
  Broadband and internet                                 574       582
  IT services                                            480       486
  Resale                                                 274       333
  Other operating revenues                               245       286
  Other gains                                              27        12
                                                       5,271     5,638
Operating expenses
  Labour                                                 (893)     (909)
  Intercarrier costs                                     (957)   (1,239)
  Other operating expenses                             (1,657)   (1,710)
  Asset impairments                                         -      (101)
  Other expenses                                            -         -
  Depreciation                                           (757)     (683)
  Amortisation                                           (275)     (234)
                                                       (4,539)   (4,876)   continued next page


                                                  40
                                                                       02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Income statement | continued


YEAR ENDED 30 JuNE                                     2010    2009
(DOLLARS IN MILLIONS, ExCEpT pER SHARE AMOuNTS)        NZ$M    NZ$M

Finance income                                           22      41
Finance expense                                        (202)   (242)
Share of associates’ net profits/(losses)                 1      (1)
                                                       (179)   (202)
Net earnings before income tax                         553     560
Income tax (expense)/credit                            (171)   (160)
Net earnings for the year                              382     400
Earnings per shares (in New Zealand dollars)
Basic net earnings per share                           0.20    0.22
Diluted net earnings per share                         0.20    0.22




                                                  41
Statement of financial position
As at 30 June 2010 and 2009
AS AT 30 JuNE                        2010    2009
(DOLLARS IN MILLIONS)                NZ$M    NZ$M

Current assets:
Cash                                  360     261
Short-term derivative assets            4       2
Receivables and prepayments           702     781
Taxation recoverable                     -     47
Inventories                            61      97
Total current assets                 1,127   1,188
Non-current assets:
Long-term investments                 276     267
Long-term receivables                  31        -
Deferred tax assets                      -       -
Long-term derivative assets            51      69
Intangible assets                    1,106    953
Property, plant and equipment        4,274   4,288
Total non-current assets             5,738   5,577
Total assets                         6,865   6,765   continued next page




                                42
                                                                                                                         02 About Telecom | 18 Broadband | 26 Mobile | 32 ICT | 39 Financials
Statement of financial position | continued


AS AT 30 JuNE                                                     2010     2009
(DOLLARS IN MILLIONS)                                             NZ$M     NZ$M

Current liabilities:
Accounts payable and accruals                                     1,179    1,021
Taxation payable                                                    15         -
Short-term derivative liabilities                                   22       43
Short-term provisions                                               19       34
Debt due within one year                                           184      385
Total current liabilities                                         1,419    1,483
Non-current liabilities:
Deferred tax liabilities                                           285      186
Long-term derivative liabilities                                   440      343
Long-term provisions                                                39       27
Long-term debt                                                    2,137    2,281
Total non-current liabilities                                     2,901    2,837
Total liabilities                                                 4,320    4,320
Equity:
Share capital                                                     1,515    1,384
Reserves                                                           (272)    (313)
Retained earnings                                                 1,296    1,369
                                                                                    The summarised financial
Total equity attributable to equity holders of the Company        2,539    2,440
                                                                                    information has been extracted
Minority interests                                                    6        5
                                                                                    from Telecom’s audited financial
Total equity                                                      2,545    2,445    statements, which are available at
Total liabilities and equity                                      6,865    6,765    http://investor.telecom.co.nz

                                                             43
Contact us
Tell us what you think about our 2010 Corporate Review:                   Disclaimer
Email:   enquiry@telecom-media.co.nz                                      This Corporate Review includes forward-looking statements regarding
Post:    Corporate Relations, Level 10 Telecom House,                     future events and the future financial performance of Telecom. Such
         Private Bag 92028, Auckland 1142, New Zealand                    forward-looking statements are based on the beliefs of management as
                                                                          well as on assumptions made by and information currently available at
For an inquiry about Telecom:                                             the time such statements were made. These forward-looking statements
Email:   investor-info@telecom.co.nz                                      are not guarantees or predictions of future performance, and involve
Post:    General Manager, Investor Relations, Telecom New Zealand,        known and unknown risks, uncertainties and other factors, many of
         Private Bag 92028, Auckland 1142, New Zealand                    which are beyond Telecom’s control, and which may cause actual
Web:     http://investor.telecom.co.nz                                    results to differ materially from those projected in the forward-looking
                                                                          statements contained in this Corporate Review. Factors that could cause
                                                                          actual results or performance to differ materially from those stated
                                                                          are discussed in Telecom’s 2010 fourth quarter announcement and
                                                                          in Telecom’s 2010 annual report. Except as required by law, Telecom
                                                                          undertakes no obligation to update any forward- looking statements
                                                                          whether as a result of new information, future events or otherwise.




                                                                     44
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