How One.tel UK refused to die

Move over Red Adair, here comes the telco trouble shooter

The future wasn't looking bright for UK telco One.tel. It was a month after its Australian parent had been sentenced to death by administration. Its own demise seemed imminent. Yet One.tel UK rose phoenix-like from the flames with the same name but a different parent. Bruce Tober tells the story behind its survival... One.tel UK's £58m sale to utility Centrica made a good news story. But the tale behind how it found a buyer is more interesting. The untold and underlying tale is that of the Ernst & Young executive whose knowledge of the company led him to lead the fight to save it. His name is Richard Coates. He is a telecoms industry analyst and E&Y partner who acted as strategic financial advisor to One.tel during its sale to Centrica. He told silicon.com: "I'm just very pleased to have been able to see the end game and to persuade people that it was an end game worth shooting for." When One.tel Australia went belly up at the end of May, it looked as though its UK subsidiary would do the same. But why should it? The UK company was solvent. Not only that, it had reached break-even point at the end of last year. In other words, it was a profitable and cash-generative company. "That gave it a lot more options," Coates said, explaining his optimism at the time. Within 48 hours of the Australian company going into administration, the UK subsidiary's chief executive, Chris Weston, took charge of the situation. He chose to call in Coates. Like Coates, Weston believed there was an alternative to putting the company into administration. He said: "We have a profitable business here. I felt if we could get the support of our suppliers then we could probably sell it." Coates knew there was a real risk at the start that a rescue package would fall apart. "People," he said, "were concerned on two levels: first that here was another alternative voice reseller that's going bust and secondly that One.Tel Australia is going bust and this is their subsidiary, so it's got to be only a matter of time till it goes too." That could have caused a contraction of credit - suppliers rushing to get paid - something the company couldn't have survived. But Coates and Weston believed there were options other than closing the business down. Coates said: "That view was based on my knowing the company from the outside. I knew it to be the best business model of the alternative resellers in the UK, in terms of the brand, its size and the systems it had." He added: "Their call centre enables it to know pretty much everything there is to know about a customer when a customer calls up. And it's got a clever least-cost routing system, which enables it to select the cheapest available route from the various carriers. That maintains margin. Both of those systems were strong. And it was making money, which is essential." The strategy was to persuade the carriers it uses - BT, Cable & Wireless, COLT, Energis and Global Crossing - there was no reason to panic, that it was a sound company and if they didn't panic, he and Weston could put together a refinancing deal or sale within a fairly short time frame of two to four weeks. "We held a meeting with all the carriers within a couple of days. We opened the books to them. It was the only strategy - we had to show we had nothing to hide," Coates said. And it worked. The way One.tel UK was saved highlights a wider issue. In continental Europe and in the US, Coates reckons there is a "more informal and cooperative process for dealing with financial difficulties than in the UK". "Certainly in the US there's a much more debtor-friendly environment, in which they don't automatically assume everything is wrong, or the company's no good. They give it a chance to address its difficulties," he added. Eyes are on the UK now to change its system and culture. Indeed, the government put out a consultation paper about 18 months ago aimed at promoting the 'rescue culture' in the UK and asking whether legislative reform is needed to enable more rescues to take place. And Coates believes new economy companies, with their plethora of intangibles and dearth of bricks-and-mortar assets need a "slightly different set of mechanisms because traditional legal mechanisms have difficulty with intangibles generally." He added: "There's hardly a legal environment for the internet, so how can we have a legal environment for dealing with internet-based companies in difficulty?" Regrets about the deal? Coates said the only thing he would like to have been able to do differently was to refinance rather than sell the company. But as CEO Weston pointed out: "In the end, every member of staff is retaining their job and all the creditors will stay whole." And at the same time, Coates admitted he's had a few calls from potential clients asking him to save their companies next. by Bruce Tober