[Irish Times] Sounding alarm bells over pace of broadband

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Sounding alarm bells over pace of broadband
By Barry O'Keeffe

Ben Verwaayen is perplexed. As head of BT (British Telecom), and former head of telecommunications equipment maker Lucent Technologies, he is not a man who perplexes very easily, writes Barry O'Keeffe

What perplexes him is Ireland, and the development of broadband, the all-encompassing term for delivering high-speed data services via phone lines.

The Dutchman feels that broadband's development here is very, very slow. BT is a major player in the Republic through its subsidiary Esat BT.

As a former director of KPN, the Dutch state telecoms operator, he was deeply involved in it and Telia's 35 per cent buy-in to Eircom before its first flotation.

He says he knows Ireland for many years and is really impressed with what is happening here. "But what I cannot understand is that there is not a sense of urgency and alarm [ regarding broadband]."

Mr Verwaayen says the world is about to undergo a massive migration of work. "You will get an opportunity to participate on the world stage... without moving home."

He says people will be able to make their skills into a sellable product because of network technology, which will allow you to link in real time with other people.

He cites India: people think it is about low wages and call centres, he says. "That's an absolute misrepresentation... it is about knowledge, entrepreneurial skills and a good financial model."

All of that would not be effective unless it was linked to the rest of the world, 24/7, he says.

Mr Verwaayen argues this is a key reason why India is so successful. "In 1988, India's IT services outsourcing business was worth about $50 million. Today it is worth $50,000 million... it is real-time, front-office work, real-time, back-office work integrated in other parts of the world."

With it comes business opportunities: "The pie will grow. I am not an alarmist, I am a realist... the pie will grow. And we can all benefit from that... the thing is you need to be connected... you need to be part of it.

"When I look to broadband in Ireland, I cannot understand it. You have been world famous, very successful in ICT [ information and communication technology], you've done fantastic things, but you need to get connected.

"We are willing to invest, to participate in this [ Irish] market and take our share of it."

He says major improvements in broadband penetration are achievable. "Take the UK: two years ago it was on a par with Albania regarding broadband connections. Now it is number one in the OECD. It's not rocket science, whether in partnership with communities, or with the SME market, but it is a matter of urgency."

Nor does Mr Verwaayen believe that Ireland has the market environment that will spur the competition "to the level that you find in other countries."

Despite this, he is a realist, saying you work with the environment in which you find yourself.

"We are willing to bring our money... Bill [Murphy, the current Esat BT chief executive] has been very instrumental in bringing broadband to areas where people said we would never get it."

This week, Esat BT announced that it planned to sign up 120,000 people within 18 months for a new line rental service, which will enable it to provide a single telephone bill for customers. The service is priced at the same level as Eircom's existing line rental of €24.18 per month.

Until recently, only Eircom had been able to offer customers a telephone line rental service, which brings a line from a local telephone exchange into a home or business. Following regulatory intervention, competitors are now able to rent this service from Eircom and offer it directly to households or businesses.

For Mr Verwaayen, who has deep experience of the telecoms industry, the business is now totally about the customer.

He says there has been a transformational change in culture. Prior to the dotcom crash, he says "companies, especially in the telecoms sector, thought that there was no limit to what you could do and the balance sheet was there to accommodate the strategy of no limitations."

Now, he says, you know there are limitations and "you know how precious your balance sheet is and, therefore, how focused your decisions have to be".

You also know that the most important person in making your strategy work, or not, is your customer, he says. "The first thing you have to bear in mind is this: 'Is my product resonating with customers?'"

To reach this point has involved a change in culture. Sustainable cultural change is the real challenge, he says. "The sincerity and dedication and relentless focus that's needed to make real cultural change stick is always underestimated."

Mr Verwaayen says he has always been hired for change. He was hired by KPN to privatise it. He then worked in Lucent, which established a major operation in the Republic some years ago.

"If you want to make change... it's the battle for the hearts and minds of people." He says people have to see the logic of change, but if it's just "management blah blah" then you won't succeed.

He has been in his current job since February 2002 but has worked in the telecoms industry virtually all his life.

The first thing he had to do at BT was clean up the balance sheet. The British behemoth was labouring under a £28 billion (€40.6 billion) debt burden. Through restructuring and cost-cutting, that debt has been reduced to around £8 billion.

There has been a massive change in customer behaviour, he says, with the switch from narrowband to broadband.

He defines narrowband as being bespoke networks - voice for voice services, data for data services. In the new broadband world, "all services will collapse into one".

The second change is that telcos used to sell connectivity and say "that's it, bye bye".

Now, he says, connectivity has become commoditised and people want capability, people want hassle-free services. "You take care of it end to end.

"The third element is that telcos must change from being product orientated to being customer orientated," he says.

Mr Verwaayen says BT is taking this message very seriously. The business is about defending its tradition, but not by price, he says. "We are focused on broadband, ICT and mobility. That is business we didn't have three years ago, it's now growing 30 per cent a year and is currently worth about £4 billion."

He admits its traditional "voice and lines" business is in decline, falling around 5-6 per cent per annum. Now, he says, it is about convergence. The company is out of mobile, having sold off its interests.

You don't need a mobile infrastructure to offer mobile services, he saysas there are phones available whereby people will be able to stick a chip in the back when they go home and automatically turn it into a landline. Customers will have one number and will not be aware that different firms are providing the service.

Convergence scenarios were being painted in Mr Verwaayen's time at KPN. The difference now is that telecoms firms no longer want to buy up every kind of operation (including internet, mobile etc) to provide seamless services.

BT has been taking out costs, but Mr Verwaayen is adamant that it has not involved cutbacks in infrastructure investment. Instead, he says, it has been replacing its network with a more cost-effective higher-tech one, with more capability and services - a broadband infrastructure.

For now it appears to be paying off. As well as cutting its debt from £28 billion to £8 billion, it has targeted savings of £500 million per year, restored the dividend and engaged in a share buyback programme.

However, results for the company's first quarter to end of June show EBITDA (earnings before interest, tax, depreciation and amortisation), before exceptional items, of £1,342 million, compared to £1,459 million (restated). Pre-tax profit before goodwill, amortisation and exceptional items, was £434 million, down from £501 million last year.

Verwaayen says: "Critics would say 'why is your share price hovering around the same £1.80-£2 level?'

"It's very simple, you have to believe we'll stay very successful in broadband and you need to believe that we can continue to defend our business and that we can continue to take costs out.

"If you believe all that, then our share price is probably undervalued. If you don't believe it, then the share price probably is what it is."

Name: Ben Verwaayen

Age: 52

Position: Chief executive, BT.

Background: Became chief executive of BT in February 2002. Joined Lucent Technologies in the US in 1997, quickly becoming chief financial officer. Prior to Lucent, he spent nine years with KPN, the state telecoms company in the Netherlands.

KPN and Telia bought a 35 per cent stake in Eircom prior to the company floating in the 1990s.

Family: Married to Heleen, he has two grown-up children and one grandchild, Ben.

Hobbies: A fanatical Arsenal supporter, he likes politics and cooking. "I am a very good sous chef, which means I have learned to take orders."