'No heroics' were factored into business case to buy Vodafone NZ, says Infratil's Marko Bogoievski

Tuesday, 14 May 2019

ANALYSIS Infratil chief executive Marko Bogoievski appears under no illusions about the challenges the company has taken on as a buyer of Vodafone NZ.

'None of this is easy,' the told analysts at a briefing on Tuesday, explaining Infratil and Canadian company Brookfield's decision to buy Vodafone NZ, in a roughly equal partnership, for $3.4 billion.

'I recall from my previous life just how difficult this sector is and how the complexity is different from some of our other businesses,' he said.

'In our long term business case we are not being heroic about revenue growth – we understand the fundamental dynamics of the industry.'

**READ MORE:

* Vodafone NZ sold for $3.4 billion to Infratil and Canadian investment firm

* Director of company that may acquire Vodafone NZ resigns from Spark's board

* Vodafone NZ needs buyer with a head for complexity**

That was not to say Infratil wouldn't look for new sales opportunities for Vodafone NZ, just that it wasn't relying on them to make the purchase stack up, he explained.

Telecommunications companies, including Vodafone, have featured among the most complained-about businesses in the country, and court appearances for breaches of the Fair Trading Act have become a dizzying revolving door for the industry.

Some of the customer service issues may have been created by the harsh economic dynamics of the industry Bogoievski alluded to, which has seen telcos forced to deliver more and faster services for the same price.

Vodafone NZ has been quick to reassure customers the ownership change won't reduce services.

A partnership agreement with Vodafone Group means Vodafone NZ will be able to use the Vodafone brand 'for as long it wants' for an undisclosed fee, and should mean there are no changes to international roaming or the range of handsets Vodafone NZ will be able to offer customers.

But the bigger question is whether the ownership change will help make the business more loved.

If Infratil or Brookfield do see any need for a change in corporate culture, that didn't shine through strongly on 'day one' of Vodafone NZ's new journey.

That was beyond an observation by Bogoievski that Vodafone's ownership of the business had placed 'constraints' on Vodafone NZ in the past and a promise that the company would be able do 'the right thing' in future 'for consumers, small businesses, enterprises and the public sector'.

The company had had 'some distractions' over the past few years, alluding to its failed bid to merge with Sky Television and a subsequently shelved share market float, he said.

'There is opportunity that comes from a revitalisation and refreshment of the business.'

Vodafone NZ chief executive Jason Paris said it was 'only 80 per cent of where we want to be as an organisation'.

One of the elephants in the room is that Vodafone NZ is in the midst of a major restructure that is tipped to see it shed at least 400 staff.

As part of that, Indian technology giant Tech Mahindra is taking over the running of Vodafone NZ's call centres under a five-year deal that will see phone support provided from India and a 'centre of excellence' in Christchurch.

There is a lot at stake here for Vodafone and its customers.

More than 200 of Vodafone NZ's call centres workers may lose their jobs according to unions, with the Unite union labelling the contracts offered to staff who have instead been offered work with Tech Mahindra 'inferior and exploitative', despite Vodafone NZ's protestations to the contrary.

E tū union organiser Joe Gallagher said Vodafone NZ had effectively made its all members redundant and communications had been poor.

'Promises made, promises not kept. No transparency. People's livelihoods are at stake.'

He believed a change of ownership offered 'some slight hope' given Infratil was a locally-based company.

'The behaviour of Vodafone to date has been a bit like the Warriors. It is not really a winning formula.'

Unite union organiser Shirley Wang was reluctant to speculate about the impact of the ownership change.

'Vodafone has signed a five-year deal with Tech Mahindra and to be honest I am not sure how much difference it will make for those workers,' she said.

'As far as I know that contract can't be broken.'

Infratil shares slipped 3.4 per cent on the NZX during a day that was billed as transformative for the investment company.

Some of that decline is likely to have been triggered by the fact Infratil will need to raise $400m, mostly from existing investors, to pay for the purchase.

Such capital raisings tend to depress share prices, and it was poor day for many stocks.

Vodafone NZ will need to pay Vodafone fees to use the Vodafone brand and to access other services it will continue to provide the company.

When a plan was hatched to merge Vodafone and Sky in 2016, it was envisaged that the merged firm would pay Vodafone $31.4m a year for at least 10 years for the right to use the Vodafone brand and, at least initially, an additional estimated $56.2m a year for other services provided by Vodafone Group.

Paris said the fees under its partnership agreement would be 'a bit less than that'.

But even so, Infratil investors may conclude Infratil and Brookfield are paying a reasonably full price for Vodafone NZ.

Indeed, Bogoievski didn't appear to suggest otherwise, while emphasising he saw Vodafone NZ as a 'quality asset'.

'We are not stealing it. We are buying it at 'current' pricing.'

Only formalities appear to stand in the way of the deal.

Infratil has a large stake in Trustpower which has about 5 per cent of the broadband market, but given that barriers of entry are so low that in itself is unlikely to trouble the Commerce Commission.

The regulator might give a passing thought to the possibility that the transaction would take out Trustpower as a potential new entrant into the mobile market – but probably no more than that.

So all eyes will be on how Vodafone NZ uses its fresh start.