As founder and former CEO of Ascend Communications, Betsy Atkins belongs to one of the world’s most exclusive clubs—the small group, mostly men, that have run multibillion-dollar corporations. It’s a club whose members frequently seek each other’s counsel when making key decisions, and today Ms. Atkins is on the phone with the chief executive of a major U.S. pharmaceutical company. The topic of conversation: telecommunications.
She is trying to convince the CEO that his company should outsource all of its telecom and IT management to a firm he knows only from his trips to the United Kingdom. It’s a touchy issue.
U.S. CEOs rarely get this kind of counsel, says Ms. Atkins, because outsourcing large corporate functions like telecommunications can jeopardize the careers of line managers and mid-level executives, the very people in a position to inform the CEO of such options. But as the former CEO of Ascend—a telecom company acquired by Lucent in 1999 for $24 billion in stock—Ms. Atkins certainly understands the economics and politics of corporate telecom.
Lucent“It’s a no-brainer that anyone who has been a corporate leader will be able to articulate in a very effective way to another leader,” she says. And that’s why the BT Group hired her. Ms. Atkins, along with three other high-level U.S. executives, is charged with the task of getting BT—the U.K.’s largest telecommunications operator—on the short list of U.S. companies that handle corporate IT outsourcing.
“You put your energy into competing in your particular sector and [don’t] peel away important headcount and dollars into infrastructure, which is not your company’s core business,” Ms. Atkins advises chief executives.
BT’s other secret weapons are Zoltan Merszei, former CEO of Dow Chemical, Gene Sekulow, former senior vice president of Verizon, and James Vanderslice, formerly of IBM and Dell.
Dow ChemicalIBMThe four will play an integral role in BT’s new international strategy: to recast itself as the world’s first standalone global business carrier. The company has retained industry executives and government ministers, active and retired, in the Americas, Europe, and Asia to get its brand in front of the largest multinational corporations, or the global Fortune 1,000, as BT calls them.
The strategy is the brainchild of Ben Verwaayen, the 53-year-old straight-talking Dutch national who has run BT since 2002. He not only wants to run the networks that connect the far-flung enterprises of multinational companies, but also the applications and IT services that run on those networks. And he’s convinced that BT has much of the reach and the resources to do it.
“We are probably in every European country from Spain to the Scandinavian countries and that includes countries like Russia and the former Soviet republics,” says Mr. Verwaayen. “We are positive about our skill sets, and we are doing the stuff to get to our goal of becoming a supplier of network IT services around the globe.”
Today, with the help of Ms. Atkins, BT gets one step closer to that goal. She manages to convince the CEO, and he sets up a face-to-face meeting with her, planning to ask another chief executive to join them. But it’s a long way from a meeting to a contract.
No Guarantees
Despite a 16-year presence in the United States, BT is practically unknown in the world’s biggest economy. Although the company has enough of a footprint to be considered one of the largest carriers in the country, it’s still relatively low-profile.
BT has a growing operation of about 1,800 people in 22 locations in the United States, Canada, and Latin America. Add to that several global business units that operate in the Americas, including its conferencing unit in Braintree, Massachusetts, and its broadcast services division in Washington, D.C.
The company once owned 20 percent of MCI, but sold it to WorldCom in November 1997 after concerns arose about MCI’s foray into local markets, which some considered too far outside its core long-distance business.
MCI“Back then we were in a sort of joint venture mode,” says Chuck Pol, president and COO of BT Americas, and an American who has been with BT for more than 16 years. “We went to market with other companies and Concert with AT&T was one of those efforts.”
AT&TConcert was a joint venture between AT&T and BT designed to meet the international network and IT needs of multinational corporations—a goal quite similar in kind but not in scope to BT’s current aspirations. Concert failed and was terminated by the two companies about three years ago.
“The original U.S. strategy was to acquire all of MCI,” says Bob House, a U.K.-based senior vice president of Adventis, a management consulting firm based in Boston. Concert was a “fallback” from the failure of the MCI acquisition, he adds.
According to Mr. House, Concert’s failure was something of a milestone in the history of modern, high-profile telecommunications partnerships. At its launch Concert was valued at over $10 billion but never garnered $10 billion in revenue, while it posted operating losses in the hundreds of millions annually.
“Concert failed because of conflicts of interest between BT and AT&T, but it was also highly dependent on third-party carriers outside the U.S. and the U.K.,” says Mr. House. “There were significant conflicts of interest in those channels because players like Deutsche Telekom would prefer to sell their own services rather than Concert’s.”
Buying Business
The failure of Concert resonated inside BT. As it embarks on its new goal of becoming a standalone global network and IT services provider, BT is buying or building much of the core of its global reach, rather than partnering its way into it. It’s an expensive undertaking, but unlike its counterparts in the U.S.—AT&T, MCI, and Sprint—BT is in surprisingly good financial shape.
The company has reduced its debt from about £30 billion ($56.7 billion) in 2001 to £8 billion ($15.1 billion) today. In the last quarter BT reported a 70 percent rise in profit from £385 million ($715.7 million) in the previous corresponding quarter to £653 million ($1.21 billion), on flat revenues of £4.58 billion ($8.52 billion).
BT, like many large national telecom carriers, is experiencing shrinkage in its traditional wireline businesses. Revenues from traditional long-distance services have practically ceased to exist, and competitive, low-cost providers of VoIP have taken a toll on the overall revenue of large carriers.
But BT has made up for that with a focus on what it calls its “new wave” businesses—broadband, mobility, and international—and according to Mr. Pol, the company is growing at about 35 percent in those businesses, offsetting a 5 percent decline in its traditional business.
“We are being watched by the marketplace. We are investing in research to the tune of about $500 [million] to $600 million a year despite the trouble which some of our competitors are seeing,” says Mr. Pol. “Because the balance sheet was stronger we decided to take a look at some inorganic areas, [such as] Infonet.”
BT has been on something of a shopping spree, buying many of the resources it would have obtained through partnerships in its pre-Concert days.
The company acquired Infonet, an El Segundo, California-based global managed services and voice and data provider, for about $965 million, which was offset by Infonet’s cash balance of $390 million. According to Mr. Pol, BT and Infonet don’t have much customer overlap, so the company hopes to sell BT’s services to Infonet’s customers, and vice versa. The Infonet deal was finalized in February 2005.
$965 million, which was offset by Infonet’s cash balance of $390 million. According to Mr. Pol, BT and Infonet don’t have much customer overlap, so the company hopes to sell BT’s services to Infonet’s customers, and vice versa. The Infonet deal was finalized in February 2005.
“Infonet was a good acquisition because it gave us further capabilities and reach here in the Americas, Latin America, and also into Asia,” says Mr. Pol. “The cultures are very similar, and they also had cash, so in a straight network transaction, it was a very good one for BT.”
According to Mr. House, Infonet brings a combination of IT and data-networking skills that BT needs.
“This is the most plausible move BT has made into the U.S. market for quite some time,” he says. “It’s a high-quality company with a pretty good focus in terms of enterprise services and it offers a good footprint across the U.S.”
In March 2005, BT bought New York City’s Radianz, a finance data communications company owned by Reuters, for $175 million. Reuters went on to completely divest itself of the data communications business by signing a $3-billion, eight-and-a-half year outsourcing and managed services contract with BT.
The company also purchased Italy’s second-largest telecom operator, Albacom. That deal, which was ratified by the European Union in February 2005, brought 1,300 Albacom employees into BT along with annual revenues in the range of €700 million ($907 million).
The three deals cost BT a total of about $1 billion, and the company drops broad hints that its wheeling and dealing is far from over. “We have an organic strategy but we’ve gotten our balance sheet and our international business back under control, and we are obviously looking to expand,” says Mr. Pol.
The shopping spree is out of character for BT; the company’s last major deal before this spurt of three was in 2001.
“Mr. Verwaayen has a very strong vision of the two or three areas that are really going to drive growth at BT, and one of those areas is absolutely its ability to provide services that can satisfy global corporate customers,” says Mr. House. “He knows they need a strong, single company driving the whole thing and that’s what he aims to do with BT Global Services.”
BT Global Services is a division within BT that handles its non-U.K. managed services and network businesses. BT Americas, a name that the company is phasing out in favor of just BT, comes under the Global Services banner.
Branding BT
If BT wants to win over the Fortune 1,000, it will have to overcome its lack of an identifiable brand in the U.S. But it’s making strides. Earlier this year, the company managed to win a deal to supply U.S. pharmaceutical company Bristol-Myers Squibb with global managed services. The deal, announced in January, has an estimated value of around $500 million.
“BT does not have a strong brand in the U.S., and in the managed services business you definitely need a brand,” says Mr. House. “It’s not a deal killer but it certainly slows them down, and they still have not got that brand.”
Even some of BT’s U.S. customers acknowledge that they knew little about the company right up until their initial sales meeting.
“Frankly, we did not know much about them at all,” says Jeff Young, senior vice president and director of systems engineering for FactSet, a financial data company. “We had relationships with all the major U.S. carriers—AT&T, MCI, Sprint. It was our London office that pretty much introduced them to us.”
FactSet, based in Norwalk, Connecticut, with offices in Europe and the Pacific Rim, will utilize BT for much of its crucial international network services. “We use BT for delivery of our services to our clients, so we maintain a large wide-area network that connects our customers to our data centers,” he says.
A Matter of Timing
The pending sales and mergers of BT’s major competitors, AT&T, MCI, and Sprint, have placed the company in an enviable position. Unencumbered by the complex regulatory concerns that its rivals now face, BT has what some estimate as an 18-month window of opportunity to establish its brand before the new U.S. telecom players emerge from their regulatory limbos.
“It is indeed not a bad situation for us to be in… we will see how good companies like Verizon/MCI and SBC/AT&T will be in execution,” says Mr. Verwaayen. “Integration is always a challenge and it’s too early to tell.”
But in the long run, the mergers may work against BT. “It may be a good thing for us and it may not be such a good thing for us,” he says. “Only time will tell.”
Ms. Atkins is not quite as reserved in her assessment of the current situation.
“The timing is wonderful for BT to have MCI and AT&T and the traditional U.S. competitors defocused, so I am extremely confident that this will be successful for BT,” she says.
But BT’s overall performance in the U.S. is mixed, so there are no guarantees that this— the crown jewel of its global strategy—will be as successful as some expect.
“It’s a race against time,” says Tom Nolle, president of CIMI, a technology assessment firm in Voorhees, New Jersey. “Can BT establish its brand before the new U.S. companies complete their consolidations? They don’t have to create a national brand. They just have to create a brand among large U.S. multinationals.”
In the U.S., BT is targeting large companies with a kind of dual citizenship in the U.S. and the U.K.—companies with two principal headquarters locations, one in each country. That, according to Mr. Nolle, accounts for about half of the global Fortune 2,000.
One of the challenges for BT in the U.S. has always been its lack of incumbency in major accounts. It was always the silent partner in various joint ventures like Concert, but targeting companies with at least a presence in the U.K. will mitigate that disadvantage a little. In the U.K., BT is AT&T and MCI rolled into one. It’s not one of the players; it’s more like the whole game.
Window of Opportunity
BT’s new strategy comes at a heady time in the networking business. For the most part, the basic business is a money-loser. Selling raw bandwidth is no longer profitable, says Mr. House, so carriers have been wrapping bandwidth with higher-value, managed services, such as enhanced security, application management, and IT outsourcing.
BT is building its resources so that it’s a one-stop shop for all of the network add-ons, and to that mix it will add its international reach to win customers that may be nervous about the uncertainty surrounding AT&T, MCI, and Sprint.
The next challenge will come, says Mr. Nolle, when the newly consolidated U.S. telephone companies begin calling on BT’s customers. Will BT’s brand hold up then?
It’s time for Ms. Atkins to start making some more phone calls.