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| Seconds out, round two… |
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| Tuesday, 06 July 2004 | |
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Cable and Wireless gets serious about the UK business telecom market... again. Just don't try to second-guess its next strategy…
Less than two years ago Cable and Wireless (C&W) was seen by many as a basket case. Flirting with bankruptcy, it had pursued a disastrous strategy devouring millions of pounds expanding into the international business services market. Its chairman Richard Lapthorne admitted at the time that C&W appeared to be on the ropes - but today the company's outlook is far brighter. It has a new pragmatic, back-to-basics strategy. The author and chief executive of the previous strategy, Graham Wallace, has been consigned to the history books and the new group chief executive and the chief executive of the UK, Francesco Caio and Royston Hoggard, have been in their respective roles for about a year. Three steps to heavenly growth? A lot rests on the shoulders of the new team in charge. They have been charged with digging the UK's second largest telecom company out of the mire. Caio's three-year recovery plan - now in its second year - appears to be stopping the rot. The recent full year results revealed that although revenue was down from about UK£3.7bn to UK£3.4bn, crucially the company had managed to halt the three-year decline in UK sales which account for nearly half the group's turnover. As a barometer to its new found financial health, C&W has restored its dividend which it had suspended the previous year after making staggering losses of nearly UK£6bn, mainly due to write-offs from the unwinding of its earlier follies. It has also returned to profitability and seems now to be off the financial 'sick list'. The first year of the recovery plan was characterised as 'stabilisation'. It was about repairing the balance sheet, cutting costs and jobs and rationalisation. C&W extricated itself from its loss-making US business and has said that it wants to cut about a quarter of the UK workforce. The second year is labelled 'reconstruction' and the third, says the company. is all about growth. The fourth... well who knows? Perhaps it will adopt the Government's approach and announce a Communist-style five-year plan. Early days Although the headline writers have stopped prefixing C&W with the adjectives 'troubled' and 'beleaguered', there is still a long way to go. The company has warned that UK revenues, which have been largely flat, might not start growing this year. It revenues are also under pressure in the Caribbean, Panama and Macao where as an incumbent it is facing fierce competition from new entrants. In Japan, C&W IDC - which offers voice, data and internet services to businesses - is performing badly. With revenues plummeting, it is reported that C&W is close to selling it to Japan's largest internet provider, Softbank. The new strategy is very much a case of 'back to basics'. C&W says that it intends to rebuild the UK business which it neglected as it pursued its extravagant international vision. It intends to go back to its roots, which means running telecom networks in far-flung corners of the globe. C&W has stated that it is looking to buy up telecom companies and licences in small and developing markets, in particular in the Middle East and the Mediterranean. This takes advantage of its reputation as the company that used to link all the diverse parts of the British Empire. It has already begun this process with the purchase of Vivendi's 55% stake in Monaco Telecom for UK£107mn. Monaco Telecom runs a fixed and mobile network in the principality and has mobile licences in Kosovo and Afghanistan. It is also bidding for a mobile licence in Oman. C&W has stated that it wants to be a "clear number two" to BT in the UK business telecom market. If you're getting that déjà vu feeling you can be forgiven. C&W has, of course, been there before in the 1980s and early 1990s when as Mercury Communications it enjoyed a cosy duopoly with BT. It was allowed to 'cherry pick' lucrative business customers while half-heartedly addressing the residential market until, in 1991, the then regulator, Oftel, came along and spoiled the party with a decision that allowed the cable companies and others to offer telecom services. The company then sold out to concentrate on its global ambitions. Wave of consolidation? Today C&W is being tipped as the company that could lead a wave of consolidation in the UK 'altnet' market and mount a credible challenge to BT, the incumbent which has prospered in the business telecom market while its competitors suffered from financial uncertainty. Name a company and C&W has been linked with it: Energis, COLT, Easynet and Kingston. However, currently this is mere speculation (or wishful thinking on the part of potential advisers) but, with a cash pile of UK£1.45bn, it must surely just be a question of time before the company makes it move. On a more modest level, C&W recently bought Bulldog Communications, a UK company offering broadband services through local loop unbundling. Also in the UK, it recently announced a tie-up with the Post Office to attack the residential market. Ironically, it aims to capture in five years one million or 5% of BT's customers - yes, the company that it split from way back in 1981. The plan is to sell the service through the Post Office's 16,000 branches in the UK. This may be a little ambitious given the head-start companies such as Carphone Warehouse have with their carrier pre-selection service Talk Talk, and it certainly piles on the competition to BT. Very few companies with any length of history in the telecom market can claim to have pursued a single, unchanging strategy for the duration of their existence. Having said that, few can claim to have made quite so many about-turns and pirouettes as Cable & Wireless. Jon Moggridge |
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