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Exit Interview - Matt Crockett

01 Jun 2010

On July 1st, four years to the day that he took over as the boss at Telecom’s wholesale division, Matt Crockett will wake up and no longer be a paid-up, senior member of New Zealand’s telecommunications industry. Sarah Putt caught up with Crockett to find out why he’s leaving, where he’s going and what he’s achieved as CEO of Telecom Wholesale and International.

Q:    Let’s start at the end: why are you going?

A:    At the heart of it is that I’ve been here for seven years. I’ve had a fantastic time at Telecom, it’s been an extremely interesting, stimulating, rewarding part of my career but I’m ready to do something quite different. And I feel like a break to work out what to do next and to actually not have any obligations on myself or my wife for the first time in 15+ years. I basically went from studying at Oxford, to seven years at McKinsey, two weeks off and then seven years here.

Working for Telecom in incumbent telco land is really interesting and challenging, but can be quite frustrating as well. I have to say it has been quite a frustrating environment to work in the last few years, particularly in what, I think, is a pretty incoherent regulatory regime. I have a great relationship with (Communications Commissioner) Ross Patterson, so it’s not a personal dig at anyone. But I do think that the regulatory regime at the moment is in an unsustainable state and it’s made it a bit of a burden in places in the job.

Q:    Will you leave NZ?

A:    I don’t want to. I’m a New Zealand citizen and from a personal perspective I’d like to stay here, but it really depends on what opportunities come up for me and for my wife when we get back and start looking in earnest. I think it’s fair to say there’s a reasonable chance that that’s likely to be in Australia because of the opportunities. If I come back and there’s something great that comes up here for me, and for her, then fantastic, but otherwise we may need to make that leap.

Q:    So you’re going to take a break?

A:    We leave on about July 10th and we’re away for three months; Central America visiting my sister-in-law and two and half months in the south of Europe just enjoying ourselves.

Q:    Sounds fabulous. Taking the kids?

A:    Yes, I’ve got three kids – Max (5), Mia (7), Grace (9) and I’m looking forward to spending more time with them than I have been.

Q:    Okay, Telecom Wholesale – you were in charge when it was established on Separation Day, March 31st 2008.

A:    That date actually is interesting on the one hand, but it’s sort of not particularly pertinent for Wholesale. There was a wholesale unit in Telecom back to about 2001/02 and I came over to run it on July 1st 2006. I came over post the regulatory stock- take bombshell and there was a recognition that it was important for us to get wholesale performing well, to improve relations with the industry and to get it set up for operational separation when it came.

I came in with a very clear mandate and support from my boss at that time, Mark Ratcliffe, and his boss at that time, Theresa Gattung, and the board, to come in and really lift the performance of Wholesale. I think there was only something like 45 people in Wholesale and we’re now at 160. The highlight of my working career is my time running Wholesale and what we’ve managed to achieve here.

Q:    So you’ve turned the perception about Telecom Wholesale around – that would be an achievement?

A:    I’d be lying if I said it was all slam dunk and we were tens on all our customer satisfaction surveys. But we’ve taken our customer satisfaction from five out of ten to low sevens and we aspire to eight plus. We’ve delivered on all of our regulatory requirements and we’ve launched quite a few commercial products that are next- generation products that are starting to have real impact.

I’m proud about what we’ve done in terms of peering and so on, which is quite a pain point. We’ve now got a local peering model that’s been taken up by players including FX Networks and being used to good effect.

Q:    What about TelstraClear, are they coming on board with that?

A:    We’ve got a different peering agreement with them and I wouldn’t want to comment any further on what their peering plans are; you should probably talk to them.

We’re now quite successful in bringing large and substantial discretionary wholesale business out into the market. We secured a large Ethernet backhaul contract, $150 million, but I cannot tell you anything more about that deal.

And in light of some of the XT challenges, we’ve been successful in fighting back and actually securing MVNO customers on the WCDMA network. They aren’t the biggest customers, but they’re very good ones and we’re in the game.

Q:    Those were the highlights; what were the lowlights from your time at Telecom?

A:    Early on within the first three to six months we had quite a few problems with our core broadband products, there were micro outages on the UBA and that was causing a lot of disruptions for my customers. I would regularly have understandably irate CEOs calling me. When you’re really affecting your customers’ operations it’s not a nice place to be. So that was a lowlight and I’m pleased to say that we quite rarely now have outages in that sense.

Another lowlight was the big blow-up around cabinetisation. When we confirmed our cabinet plans, our senior customers got taken by surprise, which surprised us because we’d shared a huge amount of information around where cabinets were going because we knew it would have an impact around their LLU investment. Without wanting to apportion blame, at the end of the day the customer is always right and something had fallen down in communication. I think the learning for me was ensuring communication to the most senior customers, and not relying on their more junior people.

The more recent one [lowlight] would be the loyalty outcome, where we genuinely did what we thought was in the rules. Clearly the view from the Independent Oversight Group and the Commission was that they were not OK and there was quite a lot of public fallout from that. Most upsetting was a lot of disruption from customers of ours who took up those offers in good faith.

Q:    Are there too many regulators, or parties involved in regulation (eg: MED, ComCom, Minister) in NZ?

A:    I believe there is an inconsistent and in places incoherent regulatory regime because different entities are driving different regulation. Wholesale actually loses money on every single PSTN connection that it wholesales in non urban areas. That is, the money that we have to pay to Chorus is higher than the money we get paid by customers. So we’re effectively forced to sell at a loss and I think at the heart of the challenge is Op Sep where Wholesale is separated and needs to operate in the same interest on one hand, and then the regulatory regime that, in places, forces it to lose money.

Q:    In Theresa Gattung’s memoir, she wrote that at the time there was a view in the senior executive atTelecom that structural separation would be preferable to operational separation, and that you wouldn’t have the conflicts you’ve just described.

A:    I’m not sure that structural separation on its own would have solved those problems. I think structural separation coupled with foundational regulatory reform to reflect the different industry structure and different Telecom entities that would need to be – that may well have led to a better regulatory outcome.

It’s for the [benefit of the] industry to have a simpler and more coherent regulatory regime and I suspect you hear that from many, if not most of the rest of the industry, as well.

Q:    We’re certainly hearing it from Telecom. In December you wrote to ICT Minister Steven Joyce and said you couldn’t deliver some of these undertakings until you had regulatory certainty or certainty around UFB.

A:    What that’s referring to there is a current variation that’s still with the Minister at the moment for a decision. We’re spending tens and tens of millions of dollars building new systems which are really designed for a copper world, pre-UFB world. The fibre world will change that altogether and if the fibre-to-the-home programme is going to reach its potential you need to be able to seamlessly migrate customers from copper to fibre and back again.

There is no doubt, no matter what anyone says, that this changes the different systems that need to talk to each other. And there’s one thing I’ve learned coming into telecommunications industry, is those systems – Fulfil, Assurance and Billing systems – are the most complicated, hardest things and if you don’t get them right the customer experience will be terrible, particularly when you’re trying to have an active, competitive market with people moving between different providers.

Q:    If Wholesale is getting squeezed in the copper world, do you think it’s going to squeezed in the fibre world?

A:    Whatever regulation comes out of the UFB process needs to be very thoughtful about the price relativities between copper and fibre. The one that really matters is end-users, but the price that ISPs can set for end-users is dictated by the input prices they get from the UFB provider. So you have to think of them together, and that’s where I think there needs to be quite a coherent view across all products – managed data, mass market fibre to the home, VDSL out of a cabinet, standard ADSL2, and dial-up.

I do think that the biggest challenge in the whole fibre initiative is demand-side issues; actually creating the products at the price points that will have true mass market take- up. There’s a challenge there that probably has not had as much policy and public debate as it deserves.

Q:    We’re coming to the sharp end of the UFB process, with a decision likely to be made soon. Can you look into your crystal ball – you won’t be here, you’ll be in Central America or Southern Europe lying on the beach in Nice.

A:    I sort of think of it as drinking ouzo on the beach in Greece.

Q:    OK, take yourself there, you’ve got the

news – what will happen to Telecom ifit doesn’t get a role in the UFB?

A:    Telecom is quite capable of competing, and would compete – we would have to. We have already got a pretty extensive fibre footprint and a cabinetisation programme, coupled with the VDSL2 deployment. Now we hope that’s not where it goes because we think that leads to wasted investment. An adversarial relationship between the government and Telecom, I don’t think, is in anyone’s best interest. So that’s not what we want, but if that plays out, obviously we have to plan for that scenario.

Q:    You’ll be launching VDSL2 services in the market in August.

A:    Just to help dimension it, we’re going to have VDSL2 formally launched in mid August. On Day One 15% of all lines would be of a length that would allow us to sell VDSL2 – it’s not just a faster version of the existing broadband, it actually has minimum commitments on speed. We’re using new technologies like dynamic line management to substantially improve the line by line performance.

Q:    What are the minimum speeds?

A:    15Mbps down and 5Mbps up.

Q:    How close do you have to be to the cabinet or exchange to get VDSL2?

A:    I think it’s about 1km. By the end of this calendar year I think it’s 35% [of all lines VDSL2 enabled] and by the end of 2011 when Chorus finishes its cabinetisation programme it will be 60%. So that’s a substantive footprint with a very high- performing product; those kind of performances are capable of doing HDTV. I’m personally of the view that copper’s still got a lot of life in it.

Q:    I think the problem with VDSL2 is the competition. It’s always the way in telecommunications: how can everyone compete? For example, if you want to take up a service offered by Telecom Wholesale you have to put up $100,000, don’t you?

A:    I think it’s more of a bank guarantee and I think we’re actually at reasonably modest levels given that if you want play in telecommunications, you don’t haveto be massive, but you’ve got to be a serious business to be able to do that.Also I’d challenge that if the barriers to entry are so high, why do we have 50-plus ISPs?

I personally don’t think the barriers to entry are too high. Naturally occurring in UFB will be some consolidation in the ISP retail market. That’s the trends that are currently playing out internationally. We’ve probably seen less of it here than I would have thought. So we are seeing very few ISPs go out of business in the last two years.

Q:    Let’s go back to that beach in Greece. It’s a nice day and Telecom’s in. What will it look like? How will Telecom play a part in the UFB?A:    I’m not really in a position to spell out too much detail, but we do think that a UFB without Telecom will be really sub- optimal in terms of taking advantage of the assets that are already there. But the details of that and discussions with CFH are confidential. We would like to see us as having a big, national role that would allow us to build up what we’ve already done.

Q:    Telecom International – Voice is prepped for sale?

A:    We are formally engaging in a process to explore partnership or sale options; we haven’t closed our minds to any of those alternatives. The business has built a very good international position, but given what is playing out in the market, particularly consolidation, we think our best position will be to sell it to someone else that can bring new capabilities and scale to it.

Q:    Why have you separated international data and kept that?

A:    In a nutshell, the synergies between international data and national data are much bigger than between international voice and international data. And it’s the voice bit that would be of most interest to other parties.

Q:    Then there is the Southern Cross Cable – you’ve got some competition there maybe?

A:    There’s competition there already, substantial competition in terms of PIPE cable, Telstra’s Endeavour cable, AJC, there’s a whole raft of competition, and while those cables may not land in NZ, the competitive battleground for Southern Cross is actually in Australia. We also have some more New Zealand-centric competitors – Optikor and/or Pacific Fibre. They’re still in the concept phase, frankly, and there’s a lot more work to be done.

Q:    You don’t think Pacific Fibre can build a continuous cable from Auckland to LA do you?

A:    What I will say is that it’s been almost 10 years since anyone landed any cable in California, which is interesting because California has got such strict environmental laws, so good luck to them.

I think you can do a direct leg; the latency difference that it makes by not kinking via Fiji or Hawaii is pretty marginal from where I come from. They’ve got a different perspective and are looking for differentiators, but I don’t feel particularly threatened in a competitive sense by a latency disadvantage.

For clarity, I say best of luck to them, but we feel very confident that we’re actually providing a great service and are very capable of competing.

Q:    Finally, at the beginning of this interview said you want to leave telecommunications; that you want to try something else. So, as you go, what do you reckon will be your abiding memory of this industry?

A:    When I came in, in 2006, the industry gave me a fair go and I honoured that fair go – and we’ve all left good mates.