Telecom NZ Network Investment

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Telecom NZ Network Investment
Rhoda Holmes, General Manager Network
Investment 14 March 2002
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The NZ Network Business

• Today
• Our Challenge
• Providing differentiated service
• Network simplification
• Partnering
• Investing to improve returns
• Managing Regulation
• Our formula for success

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Todays NZ Network Business

• Our reach, scope of services and robustness
  continue to provide us a source of competitive
  advantage
• Broadband access is now available to more than
  60 of Telecoms total customer base
• Aggregation of customer demand in provincial New
  Zealand is making wider broadband rollout
  economic
• Network complexity as a result of historical
  best of breed incremental development is
  frustrating operating cost reductions
• Regulatory requirements are still driving
  significant investment with low returns
• We are testing the potential of partnering with
  world-leaders to secure continuing market cost
  leadership

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Todays NZ Network - Recent Volume Trends

• Nationally, residential narrowband accesses
  continue to grow YoY driven by dwellings growth
  and geographic churn, while business narrowband
  accesses decline due to competition
• Data accesses are growing 20 YoY driven mainly
  by Jetstream services
• Residential local-calling minutes are still
  growing 20 YoY due to dial-up internet traffic
  growth
• Business local calling minutes continue to
  decline due to loss of access to competitors
• National PSTN calling minutes are now declining
  due to competitive loss and dial-up internet
  substituting for voice calling
• Our new CDMA network accounts for over 20 of the
  mobile traffic already (after 6 months of service)

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NZ Network Capital Expenditure FY2001/02
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Our Challenge

• To become a more efficient, tougher competitor
  who is
• leading the market and building return on
  investment, we are
• Providing capability for differentiated service
  to match differentiated customer value
  propositions
• Simplifying our network
• Choosing technologies strategic partners to
  move to world-best cost positions whilst
  minimising investment risk
• Managing investment tightly to deliver earnings
  growth and improved returns
• Managing regulatory requirements

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Providing Capability for Differentiated Service

• Transition to a multi-service packet-based
  network enabling value based differentiation with
  security, broad reach and differing levels of
  managed quality of service
• Extend our network to the desktop, delivering
  integrated network-based solutions

Fixed or Mobile Appliance
Fixed or Mobile Appliance
Voice
Voice
IP Network
Data
Data
Video
Video
Terminal-to-Terminal Service Management
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The Multi-service Packet-based Network
Transformation
Network Today 5 Services 4 Accesses 6 Networks
All-IP Network 9 Services 1 Access 1 Network
Secure transactions with bank
Voice calls with customers and suppliers
Alarms to Fire Service
PSTN Network
Voice calls with customers
Alarms to Fire Service
ATS Network
POS info with Head Office
PacNet X.25 Network
Telecom Managed IP Network
EFTPOS with ETSL
EFTPOS with ETSL
Service Station
Internet kiosk
TTS Network
Fax mail service
Frame Relay Network
Video security monitoring
Point of Sale information with Head Office
DSTN Network
Secure transactions with bank
Tank telemetry to suppliers
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Simplifying Our Network

• from multiple service platforms today . . .

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Simplifying Our Network

• to an all-IP network by 2015 . . .

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Migrating Our Networks

• We have researched alternatives and tested our
  thinking internationally
• We will balance speed of migration with investing
  for improved returns
• Our migration path will preserve existing value
• TDMA to CDMA managing cost effectively the
  transition to enable IP access for mobile devices
  
• Increased broadband coverage wireline DSL
  wireless solution for remote areas 1XRTT for
  mobile customers
• Cost-effectively managing high speed ethernet
  access for business customers
• MPLS core to provide differentiated quality of
  service

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Managing The Transition

• Invest in growth and renewal using the right
  technology
• We are deploying DSL capability to deliver
  IP-based services profitably, utilising our
  existing coverage
• Cap investment in legacy platforms and close them
  down after proactively shifting customers to new
  generation platforms
• We are migrating existing services from legacy
  data platforms with limited useable lives to DSL
  fibre capability
• Preserve our PSTN investment until obsolescence
  makes replacement essential
• Our first-in voice over packet investment will
  replace end-of-lifecycle PSTN switches
  cost-effectively
• Work with our key partners to implement OSS/BSS
  to support the multi-service packet-based network
  with minimal backward integration

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Partnering For Market Advantage Reduced Risk

• Carefully managing fewer, broader relationships
  will enable
• new services to be deployed more quickly at
  reduced cost
• Benefiting immediately from our partners market
  expertise and equipment cost economies
• Aligning incentives for successful delivery of
  new capability into the market
• Sharing risk and return to reduce our overall
  risk in an environment of rapid technology
  evolution and commercial instability
• Simplifying our network by minimising the range
  of platforms and number of technology vendors we
  work with
• Developing efficient operational support systems
  to reduce time to market and total operational
  costs

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Improving Return on Investment

• As we transition our networks, we are investing
  to grow and
• sustain revenues and avoid future costs
• Choosing technologies partners to move to
  world-best cost positions without increased
  investment risk
• Making investment choices that support our market
  tactics to meet customers future needs
• Have a dedicated management focus on improving
  rural returns
• Capturing opportunities to drive up revenues from
  existing assets where appropriate

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Managing Regulatory Requirements

• Tightly managing investment to meet dial-up
  speeds of 9.6kbps to 99 of customers and
  14.4kbps to 95
• Securing contributions from other industry
  participants
• Proactively managing interactions under the new
  regulatory regime
• Managing interconnect expectations

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Our Formula for Success

• Invest prudently in next generation network
• Focus investment where we can be a market leader,
  provide capabilities that customers need, and get
  the greatest return
• Partner with major vendors to capture their
  market expertise and equipment cost economies
• Proactively manage interactions under the new
  regulatory regime
• Stay focussed on investing to grow earnings

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Disclaimer

• This presentation contains not only a review of
  operations, but also some forward looking
  statements about Telecom and the environment in
  which the company operates. Because these
  statements are forward looking, Telecoms actual
  results could differ materially.
• The second quarter media release, management
  commentary and various documents filed with the
  US Securities Exchange Commission, including
  the Annual Report on Form 20-F, contain
  additional information about matters which could
  cause Telecoms performance to differ from any
  forward looking statements in this presentation.
  Please read this presentation in the wider
  context of material previously published by
  Telecom and filed with the SEC.