Optus-Alphawest face growing pains

Optus-Alphawest face growing pains

Summary: The telco's bid to become an end-to-end telephony service provider remains on course, but how Optus combines its internal culture and identity with that of a debt-laden takeover target has emerged as a litmus test of its future.In July, Optus made a AU$26 million bid for listed Australian IT services provider Alphawest.

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The telco's bid to become an end-to-end telephony service provider remains on course, but how Optus combines its internal culture and identity with that of a debt-laden takeover target has emerged as a litmus test of its future.

In July, Optus made a AU$26 million bid for listed Australian IT services provider Alphawest. The Perth-based outfit welcomed the proposed takeover and recommended shareholders accept the 68 cents per share offer. Both companies will seek shareholder approval later this month.

The Singapore Telecommunications-owned carrier already offers IT services through its Integrated Business Solutions division and sister company, NCS. However, this is the first time Optus has resorted to an acquisition in Australia to boost those services.

Wary of the challenges similar mergers have faced, such as Telstra's acquisitions of Kaz Group and Damovo, Alphawest chief executive officer Garry Henley said he was relieved Optus was in no rush to swallow the company.

"The culture and perspective that both companies have is quite different, and the challenge is bringing those together. So it's important not to have a 450 person business sucked into a 1,000-odd person business.

"Any such rush in integration could prove disastrous.

"We're very conscious not to become another statistic in the telco-integrator roadkill," Henley told ZDNet Australia.

He maintained recent comments made at a seminar where he quashed speculation that Optus might only be interested in Alphawest's basic infrastructure services, and not its application development resources.

"We had a lot of discussion [with Optus] on this. The real issue is to drive up to the application level, not just put a [VoIP] phone on your desk.

"We had to reinforce with our staff that [the takeover] makes sense. We are the catalyst to help drive convergence to their customers. They're buying us for that end-to-end ability," Henley said.

Nevertheless, how Optus will use Alphawest to service customers poses several problems for both sides.

In a recent draft research note, analyst firm IDC said that while technically strong, Alphawest had some instability due in part to "ever present financial concerns".

Optus would need to improve "process, branding and customer management within the wider Australian context" if the acquisition was to be successful, according to IDC.

Jens Butler, associate director for services at IDC, said Optus would also need to more clearly differentiate its services businesses once Alphawest was acquired.

"Where is the differentiator between these companies -- Alphawest, [Optus] Business Solutions and NCS?"

"Who does the customer talk to, and does the customer know who to talk to?", Butler asked.

Staffing, debt issues
With a majority of Optus' customers on the eastern seaboard, some of Alphawest's 150 employees in Western Australia could be redeployed.

"We're going through that [discussion] process now.

"We have to ask, 'where are the crossovers in knowledge'," Henley said.

Alphawest has 300 employees based in eastern states. To meet Optus' demands, however, "that's not a lot of people, for sure," Henley said.

"I think of the one challenges will be tapping in to the 250 account managers in Optus Business," he added.

Another culture challenge to be reconciled will be Optus' alliance with Nortel Networks on converged communications. Alphawest is a Cisco gold partner.

"I'm not really sure what we'll do there," Henley said of the conflicting relationships. "We'll have to work through what comes across from Optus and what we can provide."

Financially, Optus will inherit AU$3 million in residual debt -- courtesy of Alphawest's buyout of Telstra's Solution 6 in 2002.

Despite the obvious challenges of a carrier absorbing the business of an integrator, Henley remains confident such a model could still work.

"Absolutely. Without a doubt. But that doesn't mean the ones that have been done, have been done properly," he said, without specifically referring to Telstra, or IBM -- which paid AU$89 million for local IT integrator, Logicalis, last year.

"A lot of people in those businesses lost their best people in the first three months.

"Buying a business for the people is the key, and Optus have taken a longer term view.

"In the next six to twelve months, we'll be substantially bigger and growing in this space," Henley said.

An Optus spokesperson said Alphawest will continue to focus on government as well as mid-to-large corporates but declined to provide more details for this report.

Topics: Telcos, CXO, Cisco, IT Priorities, Networking, Outsourcing, Optus, Telstra, SingTel

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