Share price halved, 1300 jobs gone: What happened to Spark?

Thursday, 21 August 2025

Spark’s offices have thinned, but its remaining employees can take pride in the fact that more of the benefit of their labour is accruing to fellow Kiwis and the local economy rather than overseas shareholders.

ANALYSIS: Very large profits are a bit like pain in a human being, or a strange high-pitched sound coming from a piece of machinery.

They are usually a sign that things aren’t working as well as they should in a market. Something is not quite right.

So it would be wrong to assume Spark’s falling profits, which were down by a third to $227 million on an adjusted basis in the year to June, and its share price, which has halved over the past two years, are necessarily a “problem”, let alone anyone’s fault.

Instead, they are the inevitable outcomes of highly successful National government-led reforms that culminated in Telecom being cajoled into transferring its copper network to a new entity, Chorus, in 2011 and the construction of the ultrafast broadband network.

The result of those reforms has been faster and cheaper telco services.

It may now seem hard to believe that as recently as in 2016, most Kiwis were on capped broadband services that could see them pay more each month for internet use depending on how many gigabytes or megabytes, they chewed through.

Former Spark chief executive Simon Moutter once faced staff and fretted about the implications of unmetered broadband for the firm, mulling what would happen to the electricity industry if it ever moved to an all-you-can-eat model.

He also worried, quite rightly, about what were once dubbed “over-the-top services” stealing the telcos’ lunch.

Whatsapp, Teams, Zoom, Messenger, Discord; all making mincemeat of the idea people would need to pay by the minute to communicate.

The talk was of a “fat” or “thin” Telecom, before it changed its name to Spark.

The question was could or should it leverage its still majority but gradually eroding share of the internet access market to branch out into new markets, or retreat into merely providing some of the plumbing for the internet economy?

It attempted the former to some extent, but got laughed out of court.

Its online shopping site Ferrit exited with its tail between its legs in 2009.

The company tried getting into the home security market with its MorePork service, taking on BuildersCrack with WeDo, streaming television entertainment through Lightbox, all without much success.

Spark has signalled it will stick to its knitting.

It axed its Spark Sport streaming service in 2023 in perhaps its most severe humiliation.

Even ventures that might seem quite well-aligned with its core business don’t appear to have gone as well as expected.

Many shareholders would have been hoping for a better outcome than it selling a 75% stake in its datacentre business for about $500 million last month, when it was trumpeting the opportunity in 2014.

It is now seeking an additional investor for its Mattr IT security software business, which is understood to employ about 80 staff.

Spark is still a player in the IT services market through its investments in cybersecurity and AI consulting, but that isn’t commonly a particularly lucrative market for investors.

In good times, sought-after skilled staff are always demanding more pay. In downturns they can sit on the company’s books eating up operational expenditure.

Yesterday, the de facto verdict on the fat-versus-thin Spark debate became an official one.

Chairperson Justin Smyth announced the board had approved a five-year strategy that would see it change its focus “from a broader digital services ambition to its core business of connectivity”.

Couldn’t be much clearer than that.

Snag is, anyone can resell ultrafast broadband.

And in the mobile market, Spark faces competition from One NZ and Macquarie-owned 2degrees, both of which have comparable networks based on broadly the same technology and — depending how you look at it — deeper pockets.

Jolie Hodson pictured shortly after her appointment in 2019.

Macquarie Asset Management is understood to have positioned 2degrees to be particularly aggressive on pricing in the business market recently, perhaps to build market share for 2degrees ahead of a possible float of the telco in a few years.

Broadband and mobile are no longer growth engines. Spark’s broadband revenues declined 1% to $608m in the year to the end of June. Mobile service revenue fell 2.3% to $987m.

Chief executive Jolie Hodson expects to see growth return to its mobile business “in the next year”.

“Broadband remains a competitive market.”

Competition has been great for consumers. But it has been a tough journey for employees as well as investors.

In the early 2000s Telecom had a reputation for being a mercurial employer, with the potential for big bonuses dangled ostentatiously before new recruits.

Spark’s result announcement yesterday reveals it cut 1300 staff in the year to the end of June, and such incentives are probably not quite the major motivational driver for staff that they once were.

But its 4000 remaining staff can take pride in the fact they are performing a vital role connecting New Zealanders and that more of the benefit of their labour is accruing to fellow Kiwis and the local economy, rather than overseas shareholders.

And although the improvement in competition should be celebrated, it would probably be helpful for everyone if a little fat was left in the telco sector.

Spark, One NZ and 2degrees have all proven to be pretty good corporate citizens over the past several years. A social conscience has often been on show. Sometimes they have even been accused of being “woke”.

All have seemed to pull together well to serve communities in crises, with a track record of helping each other’s customers during events such as Cyclone Gabrielle.

Periods when mature businesses hit leaner times can raise some dangers.

The temptation can be to fund dividend payouts to shareholders with suboptimal asset sales or impudent levels of debt.

A refresh of Spark’s board is underway and the eyes of some analysts are on Spark’s still-enviable A- credit rating with Standard & Poor’s, after the ratings agency put that on negative watch in March.

Spark’s new dividend policy will be to pay out 70% to 100% of its free cash flow (100% next year), but according to an updated definition of its free cash flow that Smyth says “incorporates changes in working capital and capital expenditure used to operate our core business”.

That should translate to a reduction from a total payout to shareholders of $472m for the year just passed, to an estimated payout of $290m to $330m — or about 16c a share — in the current financial year.

Hopefully, its policy will prove sustainable in the long term and Spark will see growth in its core business from here, now that it is humming away without all the screeching profits of the past.

“At the end of the day, we had to adapt to the environment,” Hodson says on Spark’s past decision-making.

“In hindsight, could you say some of those things could have adapted faster? We've talked about that, in terms of why we're very clear on the transformation programme we set out.

“For my part, I'm 100% focused on executing our transformation agenda and I'll do that to the best of my ability, and that's my focus until someone tells me otherwise.”