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| Whatever happened to the likely lads? |
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| Monday, 07 June 2004 | |
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They came, they saw, but they never quite managed to conquer a UK telecom market still dominated by BT. This could still change…
Heralded as the companies that were going to give BT a run for its money in the wake of liberalisation, the UK alternative networks such as Energis, Thus, COLT and Cable and Wireless saw their market values skyrocket during the dot.com boom of the late 1990s. Share prices reached what, in hindsight, appear to be ludicrous levels - only to fall off a cliff when the telecom bubble burst in 2001. Almost overnight the 'altnets', as they are known, were transformed from the City's darlings to the City's pariahs. Many overstretched themselves financially, too often paying top dollar to acquire firms that provided at best a dubious fit. From heroes to zeros in little more than the time it takes to say 'bubble'. Along the way, a lot of money had been sunk into the ground - or, in the case of Energis, slung round overhead power cables - and the altnets still believe they can extract value for their shareholders. Today, after a period of repairing balance sheets, cutting capital and operating expenditure and refocusing their businesses, the altnets have emerged with a new mood of optimism. So where are they now? TelecomRedux looks at four of the major UK altnet players. Energis Formed in the early 1990s by the UK's National Grid, Energis built its network by slinging fibre optics around the power cables that criss-cross the nation. Initially viewed with scepticism, the company rapidly built a national network and became one of BT's fiercest competitors for big business customers. It expanded into Europe and built a 20,000km pan-European network but by early 2002 it had amassed more than UK£2bn of debt, eventually being taken over by its bankers after going into administration. It sold off its European operations and refocused on the UK. It suffered the ignominy of de-listing from the FTSE100 and the NASDAQ and is still smarting from its disastrous expansion phase. More than 1,800 former shareholders who were left with nothing when the banks took over are still considering legal action against the company. As it is no longer a quoted business and therefore doesn't have to report its financials on a regular basis, the company's current performance is hard to gauge. However, last June Energis released selected financial data which revealed that it had won more than UK£1bn in new business and contract renewals since its takeover. Headed by former Freeserve boss, John Pluthero, the company has gained an enviable reputation for customer service and has picked up a number of accolades. It has won many new accounts such as Tesco and Sun Alliance and provides network services to many of the leading IT service companies such as Fujitsu, EDS and Logica. Despite its image still being hampered by its previous financial misfortunes, industry analysts believe it is beginning to turn the corner - although it is hampered in offering lucrative crossborder services in competition with the likes of BT and COLT having disposed of its European operations. COLT Originally formed in the early 1990s as 'City of London Telecommunications', COLT (unlike Energis) has managed to keep hold of its 15,000km pan-European network which covers 32 cities in 13 European countries. The company claims to be the leading provider of voice, bandwidth, data centre solutions and managed services to business and government customers across Europe. Its UK network, which comprises part of this, spans more than 1,100km and is concentrated in three cities - London, Birmingham and Manchester. Like most other altnets, when the market took a dive its market capitalisation was savaged. In the spring of 2000, with its shareprice standing at UK£41, it was valued at about £60bn - against a value of little over £1bn today. However, the company has done a lot to put its house in order with tight cost and capex control. Facing an increasing squeeze on its wholesale market business, the company is targeting higher margin corporate accounts, particularly in the financial, legal and media sectors. COLT, which is 56% owned by Fidelity International, recently lost its chief executive, Steve Akin, who will be succeeded by Jean-Yves Charlier from BT's Global Services division where he was president of its European operations. The move is said to be a switch from cost cutting to a greater focus on winning more revenue from the corporate market. Still loss making, COLT reduced headcount by almost 600 in the past year with current employees standing at about 4,000. On a negative note, COLT as a European operator cannot hope to compete for lucrative multinational business with the likes of BT and C&W - both of which have global networks. Thus Formerly a division of Scottish Power, Thus delighted the City at its recent full year results when it revealed that sales had increased by a forecast-beating 14%. It also predicted that five years after it became a quoted company, it would post a profit next year. Bill Allen, its chief executive, says he has never been more optimistic about the company's future since the firm was first floated. Certainly, as with any telco, it hasn't all been 'plain sailing'. Shortly after it was floated, Thus had a market capitalisation of UK£2bn and today it is valued at only about UK£70mn. The company boasts customers such as Tele2 and BskyB and has recently signed up the Virgin Group and Southern Water for its telecom and data services. It also counts Sweden's Tele2, which offers low-cost calls in competition with BT, as one of its wholesale customers. 90%-owned by institutional investors including Fidelity, Prudential and Standard Life, Thus operates its own national fibre optic network which extends nearly 6,000km serving 20 key businesses centres and has increased its metropolitan networks from eight to 15. While strongest in its native Scotland, it is well placed to exploit its network in the rest of the UK. Demon, its internet service provider business. has made important inroads in the small to medium-sized business sector but the company as a whole punches a little below its weight in the major corporate arena, which analysts say is partly attributable to its 'so-so' brand. Cable and Wireless The second largest telecom operator in the UK after BT, Cable and Wireless (C&W) is recovering from a torrid time after its ill-fated global ambitions came to nothing and it pulled out of the US and some markets in continental Europe. Its UK business suffered as a result of these distractions. It is now trying to put its house in order and is in the midst of a three year recovery plan. The former chief executive of Logica CMG, Royston Hoggard, has been brought into run the merged UK and continental business reporting to C&W chief executive Franceso Caio and the company has moved its headquarters from its plush offices in London to Bracknell in order to save UK£30mn. The UK business, which accounts for a little under half the company's revenue, is looking to reduce its workforce by more than a quarter. And if its recent full year results are anything to go by, its strategy is bearing fruit already. It has managed to halt a three year decline in UK sales and it has reinstated the dividend it dropped last year. Its chairman, Richard Lapthorne, is in buoyant mood as well. He was quoted as saying that 18 months ago the company was regarded as down and out but the resumption of dividend payments is evidence that it can build it self a prosperous future. C&W offers a broad range of data and network services with a strong focus on IP. Revenue is split between its wholesale business, small to medium business and larger corporates which includes the likes of Shell, Heinz, Cisco, Marks and Spencer, FT.com and Tesco. It claims that two thirds of the Fortune Global 500 are its customers. It recently bought Bulldog Communications - one of the few companies in the UK to offer broadband services through local loop unbundling. Bulldog is said to have unbundled just 38 local loops so far. The acquisition will mean that this is likely to be expanded rapidly, especially as Ofcom has announced plans to cut LLU charges by up to 70%. Cable and Wireless has said it will continue with Bulldog's plan to unbundle a further 200 local loops by the end of the year - providing BT with stiff network competition in ADSL for the first time. Jon Moggridge |
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