C&W Stuns With Job & Customer Cuts
It's bad because "our service isn't good enough" and "our business is too complex." Also, he believes that the U.K. operation has too many people, too many networks, too many IT platforms, too many services, and -- in perhaps the most shocking admission of all -- too many customers.
So Pluthero is wielding the axe. The former head of Energis, who has only been in charge of C&W's U.K. operations for a few months, has decided that between 2,000 and 3,000 of the unit's 5,500 staff will lose their jobs. (See C&W Says Ciao to Caio and C&W Wins Over Energis.)
The customer base will take an even bigger hit -- Pluthero plans to continue providing service to just 3,000 of the current 30,000 customers, while the other 27,000 will be disconnected.
In addition, 15 network platforms will be cut down to three, 23 billing systems will become just two, and the number of products and services will be cut drastically from the 100-plus currently on offer.
These moves, plus other cost-cutting measures, will enable C&W to achieve its target of £400 million of EBITDA (earnings before interest, tax, depreciation, and amortization) from £2 billion ($3.5 billion) in annual revenues. That level of EBITDA will equate to double-digit operating margins, says the U.K. CEO.
"I can build a high-performing business based on fewer customers and fewer products, but doing it really well. But we need to go the extra mile, and become famous for our customer service," he said. "It's not good enough to be as good as the next guy, because the next guy ain't that good," he said, without mentioning BT Group plc (NYSE: BT; London: BTA) by name.
Investors and analysts will take some convincing. Despite ongoing rumors of a potential private equity bid for part or all of C&W that have edged up the share price in recent days, today's revelations sent the stock down by 1.75 pence, nearly 2 percent, to 106.75 pence.
And in a research note issued this morning, the analyst team at Lehman Brothers said, "In our view the scale of the transformation will be extremely challenging."
Those weren't the only dissenting voices. Pluthero's route to profitable growth is to concentrate on 3,000 customers, comprising mostly of large U.K.-centric enterprise customers that need some international connectivity. He stressed, though, that C&W was not attempting to compete with the likes of AT&T Inc. (NYSE: T), BT, and Equant N.V. in the multinational customer market.
These large U.K. businesses will, in Pluthero's long-term plan, provide about 65 percent of revenues, and wholesale customers, which will deliver about 35 percent of annual sales.
Pluthero's rationale for going after these enterprise users -- who spend anything from £3 million ($5.3 million) upwards a year on communications services -- is that C&W is in "a two-horse race" to win such accounts, with the other equine runner being BT, of course. He reckons BT is just about the only other player C&W ever sees in the market for large U.K. business users, which spend about £7 billion ($12.3 billion) a year on voice and data services.
Put under pressure, he admitted that the former MCI -- now known as Verizon Enterprise Solutions -- and Global Crossing (Nasdaq: GLBC) still existed, but were rarely seen in bids. The U.K.'s virtual network operators (VNOs), Vanco Group Ltd. and Sirocom Ltd. , didn't merit a mention. (See Verizon Restructures Team, GCUK Reports Q3, Swisscom, Vanco Ally, and Sirocom Lands New Deal.)
Chris Lewis, Enterprise Practice Leader at Ovum Ltd. , questioned Pluthero's bullish outlook. In an email note he wrote that "John Pluthero outlined a very ambitious plan to transform C&W U.K. into a high margin, highly focused provider of managed business communications services," and observed, "It isn't as simple as a 'two horse race' as he suggests for the U.K.'s top business customers."
The C&W CEO is convinced it's just a matter of beating BT to about 20 percent of that major enterprise business. But he has a number of challenges along the way, mainly based around the integration of the legacy C&W U.K. operations and the Energis business, as well as the introduction of the carrier's own next generation network, which has already hit a supplier speed bump. (See C&W Plans Its Own 21CN and Tellabs, C&W Part Ways.)
That NGN involves the construction of new Ethernet-based metro nodes, the introduction of softswitch technology, and the unbundling of BT's local exchanges by C&W's broadband access unit, Bulldog. Pluthero says more than 50 metro nodes will be deployed by March 2007, compared with just 9 now, and that 800 local exchanges will have Bulldog DSLAMs installed by the end of this September, from 400 now.
"If we don't have our NGN, in five years' time we won't have a business. But at the end of the day, it's just another technology refresh," said Pluthero. He's less interested in the nuts and bolts, and more interested in what it will deliver: "A more productive opex, lower capital intensity, and a transition to a better business model."
— Ray Le Maistre, International News Editor, Light Reading