Staying alive: global survival strategies for the telecom recovery: competitive carrier CEOs across the world are emerging from the telecom firestorm a lot wiser. In this exclusive profile, compiled by telecom commentator and author Grahame Lynch, they tell Telecom Asia what they learned from the collapse, their fears for the future and new survival strategies - Cover Story - Industry Overview

Telecom Asia, Sept, 2002 by Grahame Lynch

In Melbourne, the 50-something telecom CEO, who we shall call Bill Johan, slumped against the conference room wall. "It's difficult when all your assumptions and forecasts go out the window," he lamented, referring to the collapse of the dotcoms. "I mean, my teenage daughters have a better idea of what the Internet market is all about than I do. But it's people like me who have to work out a way to make broadband profitable."

Around 7,000 miles away in Bahrain the following week, Batelco CEO Andrew Hearn contemplates his impending retirement. "My wife has been organizing our retirement holiday on the Internet down to every last exhaustive detail. There's almost no point in going because we now know everything about where we're going."

Hearn's eyes narrow. "The Internet is a phenomenon of the younger generation and here in the Middle East we have an enormous younger demographic coming through. But our youngest managers are in their mid-30s. What I'd give to post some 18-year-olds in our Internet unit."

Johan and Hearn, of course, have something in common with many telecom executives. Not only are they trying to figure out why so many behemoths like Global Crossing, WorldCom, KPNQwest and others have come to a sticky end, but they are also grappling with a more fundamental challenge. How do you wean your management team from a world of predictable annual single-digit growth and ready acceptance of services into a "brave new world" governed by the forces of zeitgeist and memes?

Why do GSM users send 1 billion short messages per day--nearly two each? Why do movie buffs download 350,000 pirate copies of films each day? Why do 500,000 Internet users maintain their own self-published weblogs? How do you plan for this, anticipate this and make money from this?

What's more, telecom executives--many of whom are badly cut out for such challenges--have to somehow harness these markets in the context of ruinous competition and the reality that, as a professional class, they are discredited in the eyes of financiers, regulators and governments.

Competitive carriers, in particular, have lost immense credibility. Many are now crying foul at claimed intransigence on the part of incumbents and regulators even though they have just emerged from a period where more financing was given to the telecom sector over a three-year period than the British government raised over the previous two centuries for that country's national debt.

Over the past year, I have interviewed carrier CEOs from across the world--North America, Asia, Australia, the Middle East--in an attempt come to terms with what happened between 1997 and 2001, and to discern some of the smarter strategies concerning going forward. A common thread? Abandon the vision thing and focus on niche under-the-radar activity and sensible business practice.

Cutting costs, pruning visions

Some of the new recovery strategies are just pure, applied commonsense. Hong Kong's six-way cellular market has man aged to contain churn from a destructive 100% to a slightly more acceptable 70% through the introduction of penalties such as SIM deactivation fees and number portability charges.

The second cellular carrier in Kuwait, Wataniya Telecom, was cashflow profitable in its first year by not only focusing on prepaid services, but also ensuring that dealers who took deliveries of prepaid SIM card stock stumped up cash for deliveries within seven days.

But a reining in of accounts receivable means little if the original vision is misconceived.

"Where all of us made mistakes was in our desire to be world carriers," admits Chris Edgecomb, the former CEO of the now-virtually defunct Star Telecom, which at its height boasted a billion-dollar market capitalization.

"We were debt-free, so you could say we were ahead of our time, but we still spent all our money on building a global network. In Germany and Austria alone, we spent $100 million on ten switches and we never made a dollar from it.

"Companies like Star, Pacific Gateway and Primus all went into Germany and we got our butts kicked because the cost of doing business in Europe as Americans is much, much higher and we don't have the expertise. You get taken advantage of and we only ever went there because everyone else did it. If we'd just stayed in the US we would have done better."

David Murray, CEO of Kuwait's Wataniya, concurs on the need to downplay the vision thing in favor of fundamentals. "We've always focused on doing what was profitable, instead of emotional business measures such as market share. Our tariffs are not cheaper than the incumbent, so we focused on their weaknesses such as service and branding. We use the slogan `Caring makes the difference' whereas they use the slogan 'The Voice of Kuwait'. That says it all."

Set sights low

Murray provides one of the few examples of a competitor that has almost successfully upstaged an incumbent. Wataniya has captured half of the market against its competitor in three years, even though the incumbent had a 13-year head start. What's more, it has been cashflow positive since its first quarter and consistently profitable.