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Dialling for Dollars

Ah, the smell of the greasepaint, the roar of the crowd. Having completed a presentation to customers, James H. Ross, …

Ah, the smell of the greasepaint, the roar of the crowd. Having completed a presentation to customers, James H. Ross, CEO of Britain’s Cable & Wireless, ponders his performance from the comfort of a 35th-floor conference room in the company’s New York offices. “We’d rehearsed it in the U.K.,” says Ross, who took the reins of the $7.5 billion company in 1992. “We went through everything there in great detail. We rehearsed it again this morning,” he adds, his tone revealing a trace of anxiety. “I think it all came together.”

Road shows are commonplace, but the Cable & Wireless gig is distinctive for several reasons-and not just because of its choreography. The presentation, the, irst ofmany worldwide, was designed to publicize the corporation’s decision to place a single brand on such far-flung subsidiaries as Britain’s Mercury Communications and Hong Kong Telecommunications. But it also signaled the parent company’s adoption of a new, more democratic form of organization. The “federation,” a congress of equals, facilitates information-sharing among members and disabuses what Ross describes as the 120-year-old company s “colonial image.”

A skilled marketer who spent nearly 32 years with British Petroleum, Ross is betting a flat hierarchy and a kinder, gentler image will boost the bottom line, energize R&D, and help to gain a greater share of the booming privatization business. Cable & Wireless operates networks under license in 54 countries. Net income in the fiscal year ended March 31 jumped 19 percent to 1.08 billion pounds ($1.71 billion).

But perhaps an even more important shift-in an industry marked by convergence and a frenzy of M&A activity-has been Ross’ decision to evaluate more carefully the company’s prospective opportunities and strategic partners, wringing greater productivity from existing units. In addition, he’s decided not to trade body blows in markets across the board with industry leviathans such as AT&T, Nippon Telegraph & Telephone, and home-turf rival British Telecom. Instead, 54-year-old Ross says, Cable & Wireless will differentiate itself through value-added services in selected areas, including the higher-margin middle market. Like many companies, C&W hopes to press its advantages in the booming market for software and services.

Privatized by London in 1981 after 30 years of government ownership, the company has been an international player for more than a century, but a competitor in its home market for just the last eight years. The British government didn’t open the telephone services sector until 1982, and Ross complains that his Mercury subsidiary, which has a 14 percent share of the domestic telecommunications market, remains hamstrung by regulations coddling onetime monopoly BT. But he argues-and industry observers concur that the diaspora left Cable & Wireless uniquely equipped to compete in the global arena, particularly in emerging markets.

In the U.S., Cable & Wireless maintains a strategic presence through its $ 500 million subsidiary Cable & Wireless Communications Inc. In Europe, Ross watches developments carefully.. A European Union directive promises to open its internal $75 billion-a-year voice telephone markets to outside competition by 1998, and new, independent mobile-phone companies are sprouting continent-wide. Ross also is building on business in South Africa and the Middle East. But a true game-breaking opportunity exists for C&W in China, where Ross aims to use the company’s 57.5 percent position in Hong Kong Telecom as a springboard into the giant market. Last month, HKT revealed plans to work with authorities in Beijing to explore setting up a mobile telephone network and paging services in the city. At the same time, the company indicated it would collaborate with China‘s Ministry of Posts and Telecommunications to explore development of an 1,800-mile optical-fiber cable system linking Beijing and Hong Kong. Once China relaxes further its prohibition on foreign involvement-as expected-Ross says HKT is ready to move on a larger scale with investment in fixed-network construction and management.

In addition to Cable & Wireless’ basic telephone and mobile communications businesses, Ross also has his company busy laying a plank on the information superhighway: C&W’s Global Digital Highway Network is a fiber-optic and satellite network that links the world’s major commercial centers and already has enrolled such multinational clients as Esso, Wang Laboratories, and Digital Equipment. To boot, Cable & Wireless is experimenting with multimedia in the US., and with a “video-on-demand” service in Hong Kong that allows customers to dial up movies by telephone, bypassing conventional cable distribution.

Amid the flurry of opportunities, Ross tells Chief Executive Managing Editor Joseph L. McCarthy, Cable & Wireless will maintain its focus on basic telecommunications and cellular services.

“Three people out of four on the face of the Earth have no telephone,” Ross notes. “That’s a hell of a market.”


You’re on a road show, marketing to customers the new Cable & Wireless. How are you moving to reinvent the corporation?

It’s a systematic attempt to raise the corporation’s profile. Previously, we tended to promote the brand of the company locally, whether it’s Mercury in the U.K., or Hong Kong Telecom. Now we’re saying we think the brands are well-established, and we want to cover them with the umbrella of the Cable & Wireless federation.

The “federation” concept represents a flattening of the C&W organization. What’s the motivation?

When I came on board, I saw a vibrant company doing things in a fragmented way. Each part of the company was autonomous in an almost sacred sense, meaning there was no data sharing. In terms of technology, for example, we were constantly reinventing the wheel. So we restructured. Now the organization has both horizontal and vertical dimensions. In terms of resource allocation and budgetary disciplines, we maintain a more traditional command-and-control format. But information now flows around the periphery. In that sense, the center is just one segment among many.

Sounds democratic, but what’s the bottom-line impact?

Particularly in emerging markets, we can sell more effectively the advantages of working with our organization. If you join the federation, you’re not a subsidiary in a big empire, working with a company that was a dominant ex-monopoly in its home market.


You’ve also backed away from carte blanche empire building, becoming much more critical about strategic alliances. This is somewhat counterintuitive, given the licentious partnering taking place worldwide.

I see many opportunities out there. But a company our size would be spreading itself too thin if it hit anything that moved.

So we “just say no” to opportunities that don’t fit.

What criteria do you use to evaluate a potential partnership?

Obviously any partner has to have the financial capacity. But we also look for a certain market expertise. Technically speaking, we always look for a minimum stake of 20 percent, adjustable upward depending on the risk a project or venture involves. Sometimes, there’s the risk of government intervention. In one case, we felt 20 percent failed to give us sufficient protection and influence on key decisions, so we backed out.

By contrast, in some of the Japanese enterprises we’re involved in, we have a 5 percent or less stake. That’s because the Japanese are very good working in conglomerates. Sometimes in such arrangements, the other investors become your customers.

Consortia represent a way to spread the risk and tap expertise. In markets we’re more familiar with, there’s no pressing need to do that. For a while, for example, our Mercury network in the U.K. was 100 percent owned by Cable & Wireless. We recently sold a 20 percent stake.

Are you satisfied with Mercury’s expansion?

Mercury has been growing partly because any market that has been dominated by a single provider-in this case, British Telecom-is open for a second network.

But let me put it this way: When we entered the Australian market, our 21 percent-owned Optus affiliate attained an 18 percent market share within 18 months. Mercury, after eight years of operation-10 years of existence-has just attained a 14 percent share.

What’s the difference? Regulation. That’s particularly important when it comes to situations such as the cost of the interconnection with the BT network. All our calls have to be delivered through this network. We pay a certain price for that connection. But the problem is, we don’t know how that cost is determined, except to say it’s some historical accounting cost and not the true cost of providing an incremental slug of the capacity.


This dash between bigger and smaller players is happening throughout the industry. How much consolidation do you think there will be in the short-to-middle term?

That depends on the market segment. You see consolidation among companies that serve the multinational customer, where it just will continue to be a battle of the titans. We look for highly segmented, niche opportunities in that market.

How about in the middle market?

We aim to provide solutions to defined customer segments. That’s where we differentiate ourselves from the larger companies, and that’s the focus of our U.S. subsidiary, Cable & Wireless Communications Inc. For example, CWCI might work with a medium-sized law firm, using customized software to tailor its billing procedures.

People don’t realize it, but one of Cable & Wireless’ strengths-particularly in the U.S.-is as a software provider. Under the federation concept, the idea is to take some of the solutions that work here and migrate them to other areas of our business. We’re not exceptionally large in the U.S., but we plan to maintain a solid presence, because this is where a lot of technological experimentation takes place.

Across the Atlantic, EC unification seems hopelessly bogged down. How is deregulation proceeding in telecommunications?

Too slowly-especially in France and Germany-hut it is happening.

How do you see the industry in Europe shaking out over the next five to 10 years?

It’s going to be 1998 before voice telephony is fully deregulated, though things are moving a hit more quickly on the mobile front. Meanwhile, people increasingly are breaking the rules, taking calls out of the country and then back in again, because long distance sometimes is cheaper than the rates between neighboring European countries. Over time, these developments will outrun deregulation itself.

C&W derives nearly half of its revenues from offshore. What new markets are you evaluating?

We’re back in South Africa, and we also are trying to crack the Middle East. That market might coalesce around Egypt and Israel. And with the peace process, the old trading center of Beirut, Lebanon, is beginning to revive. In Europe, we may have a Western and an Eastern cluster, and another centered in the Baltics.


If any trend marks the future of the telecommunications industry, it’s convergence. How does C&W fit into that phenomenon?

Until a couple of years ago, we were inclined to say our strength is in the emerging markets, working with governments, installing basic telecom, and gradually introducing more sophisticated ways of doing business. The superhighway stuff, we reasoned, was for the big boys.

Then we realized that 80 percent of our business is in sophisticated markets: the U.S., U.K., continental Europe, Australia, Japan, and Hong Kong. If we’re not competitive in these areas, we’re condemning 80 percent of our portfolio to stagnation. So we decided we can’t afford to be left behind. And we’re cautiously experimenting with telemedia.

What’s the hot new technology that will generate growth for Cable & Wireless in the 21st century?

Wireless technology. We are considering the use of wireless, for example, to reach the customer in our home market. It’s expensive, but cheaper than laying a fixed-wire loop. Wireless also may be more economical in developing countries, rather than digging to lay lines or stringing cables from poles. The latter approach is particularly problematic in hurricane-prone countries.

By the year 2000, things in this business will have changed radically. Wireless will be more user-friendly. And developing countries won’t be subject to the same learning curve as in the West. They will leapfrog ahead, and wireless technology will change the way we communicate.

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