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Thus on rivals, regulation and recovery

Two of the telecoms operator's executives reveal their glee on hearing of troubles at Cable & Wireless
Written by Richard Thurston, Contributor

Like all UK telecoms operators, Thus has been through several challenging years. Bandwidth pricing has plunged thanks to the excess capacity left after the dot-com boom collapsed, and the growing dominance of IP is threatening to destroy traditional revenue streams.

Its rivals are also posing new challenges, with BT developing its 21st Century Network (21CN) and Cable & Wireless attempting to dominate at the top end of the UK communications market.

Thus, though, is defiant that is has a strong future. We sat down with Phil Male, its chief operating officer (pictured), and Nigel Stevens, product director, to hear about its future challenges and hear where its competitors are failing.

Q: It's been nearly a year since you acquired Your Communications [a business ISP]. How is that integration progressing?
PM: I don't think there has been a successful merger and acquisition which has added value in the telecoms sector in recent times. But we are fully integrating Your Communications. We have an 18-month plan and we are months ahead.

You said at the time that you would lay off staff as a result, intending to make £300m of savings across the two businesses. How many staff did you lay off?
PM: We are a growing business and we've taken on new staff. So it's a moving target. But recruitment is difficult. There is a shortage of the right skills because the telecoms sector is evolving, particularly for core engineers, IP engineers and security engineers.

What happened to the head of Your Communications, Hugh Logan? Thus' chief executive Bill Allan said at the time that Logan's future was uncertain.
PM: Hugh Logan left on day one along with the rest of the management team.

Why did the entire management team leave?
PM: Why not? It had no strategy for next-generation networks, and it was not investing in anything it needed in the future. We wanted to do things our way.

How are you now making the most of your revenues?
NS: Delivering MPLS VPNs is what it's about. So we are converting people's leased line and frame relay networks into VPNs. Then they might deploy IP voice.

Have you had any big contract wins recently?
NS: We've had three big contracts, with HSBC and the Pathfinder North and Pathfinder South projects. They total £145m.

Did you ever embark on local loop unbundling? You were talking about it a while ago.
NS: No. We looked at the business case five times. Every time we rejected it, and I'm bloody glad we did. Enough people are doing it to buy wholesale.
PM: We do have three exchanges in the Midlands because it was the cheapest way to deliver in that area.

What about your next-generation network?
PM: We already have a next-generation network. We're not forklifting anything.

What about BT's £10bn next-generation network, 21CN? BT runs a consultation programme for other telcos such as yourselves to give you information about 21CN. Does it give you enough information?
NS: BT is providing too much information. 21CN is highly consultative. You couldn't possibly attend all of the meetings.
PM: I think it will take till 2015 or 2016 to complete.

That's very late. BT argues that 21CN will be complete by 2011. Why do you think it will take longer?
PM: BT is facing a world of increasing data traffic. It's a long and complicated process and there has already been three slips of six month chunks. It's costing BT a lot of money because they're having to forklift all these platforms. There are a lot of debates.

So what does BT need to do?
PM: BT is getting on with it. None of this is impossible. No-one doesn't know how to do it.

The regulator, Ofcom, is central to all this. Are you supportive of Ofcom?
PM: We find Ofcom intelligent and useful. They are responsible for creating a competitive environment. We are great believers in not splitting up BT.

Instead of splitting up BT, Ofcom demanded the creation of Openreach — a completely separate company within BT which is supposed to insist on equivalent terms for all telecoms operators. Do you think Openreach has been successful?
PM: There have been operational difficulties and general confusion about procedures and processes in an equivalent environment.

So do we now have equivalence?
PM: Equivalently bad, I would say. BT has been overwhelmed with the local loop unbundling rush. It is trying to come to terms with the unexpected demand.

Will we get equivalence eventually?
PM: It has to come eventually.

One of the biggest surprises of last year was Cable & Wireless revealing that it would get rid of 90 percent of its customer base. You must have benefited from that.
NS: It was universal bad news — yet another blot on the telecoms landscape. But still I was slightly gleeful.
PM: If that's what you want to do, you don't just get rid of customers, you put the prices up. Isn't that what they teach in business school? What they did set panic among their customers.

Presumably you tried to sign up some of these disaffected customers. How did you do that?
NS: Some of them just came.
PM: Some of Cable & Wireless's customers, we wouldn't want. We have walked away from contracts before because we couldn't see how to make money out of them.

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