ADVANCING TECHNOLOGY AND the globalization of markets have turned the telecommunications industry on its head. For the greater part of this century, operators were national monopolies that enjoyed cozy relationships with fellow monopolists in other countries. With deregulation and privatization, most major telecom remain national but hungry for international markets. By contrast, the
Its revenues-70 percent of which come from outside its home country-and earnings per employee are among the highest in the industry. In the past five years, revenues and earnings grew at double digit rates, with the operations throwing off $3.5 billion in cash last fiscal year. In many countries, including the
The challenge has been that 80 percent of business came from operations that did not carry the Cable & Wireless name. Hongkong Telecom CSL, Optus in
But its leadership couldn’t agree. In November 1995, the company was almost torn asunder by a feud over strategic direction between its chairman, Lord Young of Graffham, who had once served as Margaret Thatcher’s trade minister, and James Ross, the company’s chief executive since 1992. Critics said the company resembled an investment trust more than a telecom company. When neither would step down in the face of the demands of the other, a boardroom coup forced both to resign.
In 1996 the board flirted with British Telecom, but merger talks ended when it reached all the way to
Since moving to
But challenges still loom. “C&W is at a crossroads at the moment,” asserts Andrew Harrington, a London-based managing director at Salomon Smith Barney, who says that despite formidable presence in significant markets, such as
As the pressure mounts, the question isn’t whether C&W is courting another telecom, but which one? While rumor has C&W and BT resurrecting their failed flirtation to create a $68 billion-plus powerhouse, AT&T, Sprint, and Bell Atlantic would also fit the bill, says Harrington, who expects to see a move within six months. “C&W has to increase the scale and scope of its operations significantly and that probably means forming a tight, equity-owning alliance or merger. All four options would solve problems on both sides.”
Harrington’s money seems to be on Sprint. “Dick Brown used to work with Sprint; he knows its setup very well and there’s almost perfect complementarity as far as assets go. With
Meanwhile the telecom industry as a whole is bracing for change. While much debate revolves around the impact of the Internet, within five years almost a third of the world’s telephones will be mobile-a market segment that hardly existed 10 years ago, but now accounts for more than half all new telephones worldwide. In the following interview in C&W’s
CALLING ALL COMPANIES
How are the major changes in the telecom industry affecting the overall landscape?
I look at all the possibilities of the telecommunications industry as a giant weather map. You can see fronts coming in and storm clouds forming, but what shapes and patterns dictate is not predictable. To be a survivor, and to succeed in the future as one of the big players of tomorrow, you’ve got to be both global and mobile.
We have been focusing on continuing to exploit our position as a global company. We’re in 72 countries. We’re in Asia-Pacific more extensively than any non-Asian telecom company. We’re quietly but persistently building a substantial presence in the
The rest of the industry is big, local telecom companies. Deutsche Telecom has got enormous resources, but they’re in
They’re trying to poach from each other.
They’re trying to expand out of their home regions-to leverage their localness into globalness. And Cable & Wireless is global trying to leverage into local. Instantly, when we run across the grain of the industry patterns, we begin to look beautiful.
We’re working hard to build our presence in countries that we are already in. That’s why we bought a controlling interest in Optus, the second force in
We’re rebranding ourselves. We’re a company that went by 37 different names around the world, and those splintered, multiple identities didn’t serve us well in approaching multinational accounts. In the last 12 months, we’ve changed the names of 12 of our companies and put the C&W brand before 60 million more users. The objective, over time, is to get our name in front of a billion more.
Fundamentally, our vision is to lead the world in integrated communications. That’s not just a fancy phrase. We want to integrate telecommunications information services-home banking, home shopping-and entertainment over a single network. We’re doing it with Hongkong Telecom and our license award a few weeks ago to provide video-on-demand services.
Local companies like PTT and Deutsch Telecom are privatizing. When the smoke clears, who’ll be standing?
The way I see the European telecom world unfolding reminds me-it’s deja vu-of the
When real competition goes into a market, you can expect four things: prices plunge, consumers get real choice, innovation accelerates, and the market expands. To be a surviving player when it all sorts out, you have to be global and local. How to get big enough to be efficient and stay small enough to be effective is the management challenge in this industry.
Even after all these years of deregulation, MCI only has about 16 percent of the market. How does a global company penetrate against the local incumbent?
It’s a question of timing. In many countries, we are a second force competing with the incumbent. In the
In other countries, we’re the primary force, bracing for competition and getting ourselves at a trimmed weight level. Even the incumbent can do things to expand the very definition of service. You can create new markets where you are. It’s what I call “sinking roots deeper.” I’ve challenged the organization that if we’re in a market and we do one thing, if we’re wireless only, we should work to also complement that with a wire-line capability. Do entertainment, information services, interactivity. If your portfolio is spread broadly in a market, customers are happier and margins are better. And markets where we cannot provide integrated full-service capability become candidates for exit. That’s not to say we will exit them. But they’re high on the list for consideration for exiting.
Ten years ago, the value of telecom companies was driven by two factors: what did you earn and what was your cash flow? Today, markets want to see your top-line growth and your price/earnings ratio because that paper can be used as a tool to acquire. As a new CEO, one commitment I have made to the outside world is delivering double digit, top-line growth.
Our incentive plan’s payout levels call for double digit earnings per share growth. I’m not saying we’ll make it all the time. In our half-year results, even with adverse currency changes, we delivered top-line growth of 15 percent, operating profit of 12 percent, profit before taxes of 52 percent, and earnings per share increase of 120 percent. With constant currency, we’re up 20 percent in revenues, 17 percent in profit, 58 percent profit before taxes, 125 percent EPS. That’s during a period when we also had heavy investment in building for the future-S,1.6 billion.
Under your strategy, where are your resources best served?
We’re not really in
We’re interested in not being an investment trust in telecom companies. We’re changing. We’ve gotten into
We’re a $1 billion business in the
What do you hope to accomplish with alliances such as the one with US West?
In this industry, few of us have the resources to go into so many places completely alone. It’s not uncommon to be competitors in market A and partners in market B. It’s not easy, but it happens. I like to avoid that, but sometimes it’s essential.
How did the Asian flu affect you?
Our stock price got sick and dropped about 15 percent. But our domestic revenues are now growing 22 percent in
How will the advent of a single currency affect your business?
It’s like the weather. I don’t know how to plan on a single currency. We’re looking at markets, opportunities; I’ll let some other experts figure out the common currency impact. My message to
How will the Internet affect your industry?
As customers begin to rely on the Internet more heavily, they’re going to expect reliability and security to improve. And somebody’s got to pay for producing that, which will inevitably lead to an increase in price. Overly simplistically, the Internet grows up to be another international long distance carrier with unique capabilities.
We’re talking to various companies about how we can help customers navigate the 200 channels that digital can provide, as opposed to the 40 channels of analog. This will be done through integration with the Internet. We’re like a supermarket, accessing content the way a store brings in dairy and meat products. We’re not going to be content makers.
What challenges did you face in setting forth a new strategy?
As a person who had never visited the
What cultural changes have you made within the company?
The things that all leaders deal with. Painting a vision for the business, getting the right people in the right jobs, focusing people, getting a sense of urgency about the business, eliminating committees, and undoing boards of directors. It’s instilling confidence and telling people it’s okay to make mistakes because, by definition, to be human is to err, and people who don’t make mistakes just don’t do things.
I take on accountability. I’m a believer that leaders get the behavior they tolerate. Show me a business over time with mediocre service and I’ll show you leadership that tolerates it.