Telecom and the MED released a document on Tuesday about its plan to ‘demerge’ and split into two separate entities—the network division Chorus and the retail arm at this stage colloquially known as the ‘New Telecom’—as part of the conditions imposed by the government after its successful bid to build the Ultra Fast Broadband network. And the split, which still requires shareholder and bondholder approval, has led to a fresh round of speculation that it could be a catalyst for changes to its agency roster and might spell the end of Kevin Roberts’ position on the Telecom board.
Telecom spokesman Mark Watts confirmed the split will lead to two separate boards, two NZX listings and the appointment of two chief executives (they are thought to be Mark Ratcliffe for Chorus and Paul Reynolds for ‘New Telecom’, although it is still unclear whether Reynolds will stick around following the split. Some believe retail marketing man Alan Gourdie will take over, although one mole spoken to told us TVNZ head honcho Rick Ellis is also being eyed up).
There will still be some ‘arm’s length’ sharing of certain assets, but all in all, the split, which analysts have estimated will cost between $200 and $400 million, is a major watershed for the national telco as the two entities cut the vast majority of their ties (see what they’re planning on splitting up and sharing here).
Watts wouldn’t comment on the process of choosing the new boards or whether existing board members, including Kevin Roberts, would be involved.
“We obviously want the best people but at the moment there’s no change,” he says.
He admits decisions will eventually have to be made regarding each new company’s advertising partners, and while he says it will be an important decision to make, it’s well down the pecking order at this stage. For Saatchi & Saatchi, however, this formal announcement has given the vultures a fresh updraft.
More than a few agencies around town have been preparing for this moment for quite some time and rumours have swirled for years that one of the major reasons Saatchi & Saatchi has maintained its grip on the Telecom account was because of Roberts’ contentious position on the Telecom board (and Gourdie’s strong loyalty to both Roberts and ex-Saatchi chief Andrew Stone). One senior agency source spoken to claims Roberts’ position is considered an embarrassment by senior Telecom bods because it goes against the rules of good corporate governance and another wondered how it was possible he’s actually been able to get away with this conflict of interest for so long (we’ve asked for a comment from Saatchi & Saatchi about the potential changes, but we’re yet to hear back).
Overseas, large companies often have a number of agencies on their books, but this is more uncommon in New Zealand due to the dearth of large companies, but as one of the country’s biggest advertisers, it is slightly unusual that so much knowledge is held within just one agency. DDB Group’s direct and digital arm Rapp/Tribal did win a nice bit of the Telecom business in 2007 and indie agency Chameleon has done a couple of TVCs, but, unusually, DDB’s managing director Justin Mowday wouldn’t comment on the exciting saga or the possibility of his agency’s involvement in the future.
Whether the account remains with Saatchi’s, or goes elsewhere, it will be a good one to have (Chorus will be more of a B2B advertising proposition and will be a much smaller chunk of the total marketing budget) and it will be an exciting sector to be in as the duelling telcos jostle for position. It’s likely to be a much more vibrant and competitive market when Telecom, which has regularly claimed it isn’t able to compete effectively due to regulatory constraints, starts buying from the same wholesaler—and at the same rate—as everyone else, and most agencies without a telco client will presumably be looking to get a piece of the action (and dance on a few graves).
As for purely hypothetical crystal ball gazing, DDB and DrafFCB would have to be among the top contenders if it’s up for grabs (neither have a telco and both have big holes in their business after ANZ departed and National Bank stagnated).
Of course, the new retail beast might not even be called Telecom. It certainly seems like a good time to exorcise some of the demons of the past and start over and it’s thought Designworks has already come up with a few (three, our source says) different ideas for a completely new brand that could be implemented after the split (we put this to Designworks’ chief executive Sven Baker and he “can neither confirm nor deny”).
It’s certainly going to be an interesting one to watch.