As managing director of the business division of Telewest Business Communications, Tony Grace has his work cut out. He is the man responsible for ensuring that the division not only survives the telecoms slump, but succeeds in it.
As a result, he has drawn on every available resource and skill at his disposal. One of those is certainly tenacity.
Grace has his roots in the world of accountancy, and has brought the skills and discipline learned there to his new role, which he readily admits is a challenge.
He joined Telewest in 1995 as regional finance director and in January 2000 became the finance director of the consumer division. Grace was handed his new role in August 2002.
‘I’ve taken my chartered accountant training and applied it in a commercial environment,’ he says about his background. ‘I would say it makes me approach things logically and be more aware of the financial consequences of what we are doing. It brings a certain level of financial discipline, but also professionalism in the approach to the way we do business,’ he adds.
His training will stand him in good stead. The embattled telecoms group is in the midst of a messy, and often bitter, financial restructuring process.
A group of rebel investors, led by veteran US financier William Huff, has forced the group to cave in over its original restructuring plan.
As a result, Huff, along with other bondholders, are likely to end up with about 99% of the company’s equity, leaving the remaining shareholders with a tiny slice of the pie. They were promised 3% when Telewest tabled the original plan last September.
This didn’t go down well with shareholders, and last week saw a stormy annual general meeting in which directors faced intense criticism over their inability to defend shareholder interests sufficiently.
Top of shareholder gripes was the revelation that the company had awarded former chief executive, Adam Singer, a £1.4m payoff at a time when the shareholders’ stakes in the company had been reduced to virtually nothing.
One private investor, Angela Rizk, summed up the feelings of the attendees when she was reported saying: ‘We can’t go on like this in life, with the big fish eating the small fish. We don’t want it to end with another disaster like Marconi.’
The company has about 45,000 private investors, most of whom have bet on the group’s recovery once its restructuring process is finalised.
Grace is understandably cagey on the status of the financial restructuring, and does not divulge much. ‘We are in the final stages of negotiations with bondholders and banks,’ he explains.
‘But while all that’s going on, it’s business as usual. We haven’t been impacted in a negative fashion as a consequence of the restructuring.’
He is far happier talking about how he intends to take the business forward, and the markets he views as lucrative for the future.
While in the past, the focus of Telewest was on larger corporates, Grace sees the biggest growth in small to medium-sized businesses and the public sector.
This is not surprising. The 2005 deadline for getting all public services online has created a huge amount of impetus to those departments directly affected.
‘Our focus is to move the business towards more managed data solutions for small and medium-sized corporates and the public sector,’ he says.
‘It requires a shift in the way we face our customers, and it’s a focus on a different set of products from those we’ve historically been associated with.’
His division recently signed a contract with the United Bristol Healthcare Trust to help streamline its medical systems. The aim is to connect 12 hospitals and a number of local GP surgeries to the network.
Grace, with his experience in the company’s consumer division, believes that Telewest has the right mix of services for these organisations, and that there is a fast-growing awareness among them about the benefits.
The shift in focus came about nine months ago, and while Grace is at pains to say that it doesn’t mean the company will be ‘ignoring or neglecting’ his existing customer set, he will have to be careful not to alienate his traditional market.
Despite this, the business case is a sound one. Smaller businesses have a real need for managed services that take away the risk of providing in-house IT systems. And Telewest seems to be in the ideal position to provide this.
Accountancy is one of the managed services Grace is considering offering to SMEs, and while he claims there is nothing imminent, he confirms that Telewest has held talks with two leading accountancy software suppliers with the aim of pushing the technology to SME clients down Telewest pipes.
‘We were talking to one or two (accountancy software providers) and that’s the next stage of our development, but we’re focusing at this time on being a network provider,’ he says. ‘We are not an application service provider, but we have to be alive to the fact that a number of our customers are looking for more than that through various partnerships.’
The traditional role of Telewest is as a network provider, but this has also been the hardest hit during the seemingly never-ending telecoms slump.
On the bright side, analysts have started to predict the return of a bear market, with some leading big investors looking at telecoms shares once more after a long, and particularly painful, stay away.
‘I think there are still people that are fishing out the bottom of the pool, and there are definitely telecoms and IT-based companies that are undervalued at this point in time,’ says Grace, before going on to add a note of caution. ‘There are opportunities, but it’s still a risky market.’
William Huff not only holds a significant amount of influence at Telewest, but at another cable company often mentioned in the same breath, NTL.
He sits on the board of NTL, and will no doubt be influential in any discussions to bring the two companies together.
It is the technology sector’s worst kept secret that Telewest and NTL will merge at some point, and Grace does not try to hide the fact.
‘Generally people believe it will be a when and not an if, but there are no immediate plans,’ he says. ‘We have both got issues we have to deal with internally. There is a general feeling that sometime in the medium term – 18 months or two years – there may be a coming together. But nothing imminent.’
This view was backed by chairman Cob Stenham, who made a case for a merger at the agm. ‘I think there’s a significant chance of that happening in the future, but I don’t think that it will happen quickly,’ he told shareholders.
But this contributed to more outrage at the agm when it emerged that managing director Charles Burdick would receive £1m should the two companies come together, and he is made redundant, which is thought unlikely. As the arguments continue to rage over the unfairness of fat cat salaries and bonuses, Telewest is certainly a case in point.
At the still tender age of 41, Grace does not enjoy a position on the board, so would have escaped the majority of the shareholder wrath. Whether he holds ambitions to sit on the top table is open to debate – Grace seems happiest with a hands-on, customer facing role.
For the moment he seems far more concerned with short-term goals and uses his hands-on approach to running the division to his advantage.
When asked what keeps him busy, he does not hesitate to say: ‘Meeting customers and trying to grow in line with the business plan.’
And if he goes to the same lengths to support his customers and colleagues as he does his football team – Glasgow Celtic – then there will only be one winner.
He saw the ‘Bhoys’ ultimately put to the sword by Portuguese champions Porto in last months’ UEFA cup final held in Seville.
‘I was there with my father and my son and about 80,000 Celtic fans,’ he says, although he wouldn’t dwell on the result.
‘Hopefully in 30 years’ time, my son will be taking me.’
RISE AND FALL OF THE TELECOMS SECTOR
At its height in 2001, the telecoms sector was reputed to be worth a staggering one trillion pounds.
How things change. Those very same companies have now run up debts believed to be in the same ballpark, up to half of which may still have to be written off. So what went wrong?
The obvious connection to make is with the heady days of the dotcom boom years. Analysts were touting the internet as the next global marketplace, and investors swallowed the line with glee.
Naturally traffic rates would rise exponentially, so telecom providers would have to build the networks to support that traffic. This was the first mistake. The rise in internet traffic rose far slower than anticipated, leaving a glut of unused network capacity.
The big telecoms companies became a victim of their own success. Always trying to outdo each other, capacity provided by competing firms increased by as much as 500 times when in the same period traffic increased just four-fold.
Mobile telephony must also get a mention. Five UK operators handed the government the tidy sum of almost £23bn. And what did this get them? In the grand scheme of things, not very much. It only gave them the right to offer high-speed wireless data services. They still had to go out and build the physical networks, perfect and roll out the technology, invest in handsets and so on.
The list of companies almost beaten to submission by the telecoms slump is alarming to say the least. Marconi, WorldCom, Lucent, Global Crossing, Qwest, 360 Networks have all either filed for bankruptcy, or teetered very close to it.
Analysts have started to – somewhat cautiously – predict a recovery in the sector. And some leading investors have started to buy telecoms shares in the belief that they can only increase in value.
In fact some of the biggest names in the sector have started to post much improved profits for the first quarter this year, including France Telecom, Royal KPN, Spain’s Telefonica and Deutsche Telekom.
Admittedly, most of this can be attributed to dramatic cost-cutting, but the industry had in many ways lost sight of reality. The restructuring programmes most companies have gone through brings them more into line with successful and prudent business models.
Earlier this year, BT chairman Sir Christopher Bland delivered the firm’s annual review. Top of his list of achievements? Financial restructuring and debt reduction.
‘In the past two years, our net debt has been reduced from £27.9bn as at 31 March 2001 to £9.6bn as at 31 March 2003, a reduction of 66%,’ he boasted.
Does Darwin's theory apply to taxation? Colin ponders...
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements