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Managing the change at Colt

01 December 2006

Under Jean-Yves Charlier, CEO for the past two years, Colt Telecom has built up its managed services business, offering storage, security and other services from re-opened data centres that had been dark since the dotcom collapse. Now Charlier is returning to the main investor, to be replaced by another managed services champion




 
 





Jean-Yves Charlier: returning to Fidelity after two years running Colt







Jean-Yves Charlier is off to Fidelity, after more than two years running Colt Telecom, in which Fidelity is the biggest - and dominating - shareholder. He's being replaced by another Fidelity telecoms person, Rakesh Bhasin, who was due to take over in late December.

The new boss will continue Charlier's work in transforming the company from a competitive voice provider into a managed services provider.

Charlier, with an MBA from the Wharton School in the US, had senior positions in Equant - now Orange Business Services - and BT Global Services before being recruited by Fidelity in April 2004 and moved into Colt four months later.

He gave what was probably his final interview as president and CEO of Colt to Global Telecoms Business.

Bhasin will join Colt's board when he becomes president and CEO, and Charlier will leave the board.

Charlier is returning to Fidelity, and Bhasin is also a Fidelity executive. He is being seconded from the investment and pensions group after more than five years as president and CEO of KVH, a telecoms company based in Tokyo which he has transformed into a managed services business.

He will leave his executive position with KVH when he joins Colt, but will remain non-executive chairman.

KVH and Colt have strong similarities. Fidelity set up the Japanese operation in 1999 as an integrated service provider supplying data, internet access, voice and data centre services to business customers, with its own fibre networks and data centres. It has 1,300 corporate customers in Tokyo, Yokohama, Osaka, Shanghai, Bangalore and New York.





Continuing the work



Colt chairman Barry Bateman said that Bhasin will continue Charlier's work in evolving Colt "from a voice provider to a value-added and managed services company".

Meanwhile in Tokyo Bhasin's replacement is Miyuki Suzuki, currently president and CEO of LexisNexis Asia Pacific. She was previously a VP at Japan Telecom.

But there are contrasts: KVH is seven years old, and Colt is twice that age. Colt is a company that, a decade ago, had a state-of-the-art network across Europe. Some people - rivals, mainly - say that the company needs to do some fairly major investment in it in order to regain that position. Is that an accurate assessment?

"We're upgrading our network continuously," says Charlier. "To those detractors that say we have an old network, I'd say: 'Bollocks.' We have one of the most modern networks across Europe that's still the envy of the industry."

Colt got "a couple of things right with our network", he adds. "First, it's an all-fibre network, so those who are talking about LLU and expanding their networks and copper upgrades - how exciting! - versus an all end-to-end fibre network."

So at the physical layer, "we got it right and we've had it right for the past 14-15 years", he adds.

Colt was founded with Fidelity backing as long ago as 1992, when it built a fibre network in central London. Since then it has steadily expanded across Europe.

"The second thing is, a lot of people don't realise, we have not only our fibre network but we have 14 data centres on the back of our network. As these IP ecosystems come together we have a competitive advantage that is second to none in the industry."

The company has close to 1,500 customers that use the data centres, he says. "If any of our customers walk into our data centres: top-notch power, top-notch cooling. We're there to serve the banks with the new blade server technologies, and so on."

And there's a third thing. "In this world, access is all important. This is not a backbone network. This is an access network. It's over 13,000 buildings that interconnect, 32 major cities in Europe. And we've continuously upgraded that network."

When Charlier came into Colt "we were spending £125 million a year on the network" but "this year we'll spend £150 million, and next year we've given guidance to the market that it will be above £150 million".





Infrastructure investment



That's an increase in investment of 20%, "and we're continuously upgrading", he says. "We're connecting more buildings, so it's reach in the cities where we operate today," and upgrading the system.

"We are making our network an all-ethernet network as part of our next-generation investments. We're the first in Europe to be rolling out ethernet-based LLU and DSL services that will allow up to 40-meg speed on copper, and we'll be announcing in the next few months a number of substantial upgrades throughout the network over the course of the next three to five years."

This will take the network to a native IP ethernet network. "That is a lot less in terms of investment, because all we have to do is upgrade some of the electronics."

Isn't replacing the electronics a major task? "We're continuously upgrading. I don't think next-generation networks are about one big investment over five years, when you've got a lot of your infrastructure right. It's going to be an ongoing game. It's been an ongoing game at Colt for 15 years. We'll be talking about next-generation networks in 15 years' time. That's the reality of telecoms."

So there's a continuous process of refreshment in the network. The big change, though, since Charlier took over at Colt "is that we've been reopening data centres" across its network.

"We closed them down when the internet bubble burst and we've been reopening these. We had built them from scratch during the boom years for hosting back in 1998, 1999, 2000. We really see demand," says Charlier. "We see customers wanting a combination of high-speed, highly resilient networks and data centres in creating these IP ecosystems. We think that's a proposition that's second to none here at Colt."

The company now has 14 in operation. "We've just reopened the last one, in Hamburg. These data centres tend to be in the tier one, tier two European countries, where the bulk of the demand is."

Colt has "a very strong data centre presence in the UK and France and Germany, Italy, Spain, Switzerland, Benelux. They are the major centres that we operate."





Looking for new sites



Are there any more dark data centres awaiting resurrection? No, he says. "We're looking at new sites already, given the demand that we have. Some of our data centres are operating at 95% capacity."

Where is the demand coming from? "What's happening in the marketplace is that companies are realising that building data centres in office buildings doesn't work. People now want stand-alone data centre sites."

It doesn't work because of "expansion capability, power issues" and so on. The financial services industry generally led this trend over the past five to 10 years: "None of them are building any more data centres in their office buildings."

Where they do have data centres in offices, such as London's Canary Wharf, "I think most regret" this, he adds. "You don't have the expansion capability over time. You're blocked."

Colt sees customers wanting it to supply primary or secondary data centres, he explains. "That's the proposition we have, and we do substantial managed services for those companies within these data centres."

Managed services include "middleware and security management, back-up on demand, storage services", and so on. "The revenue per rack is one of the highest in the industry across Europe - substantially more than stand-alone hosting companies do, because we provide much more value from these data centres, much more resilience, and the combination of this highly secure, high resilience network that we have."

Let's turn back to that network. Colt is upgrading, but what's the schedule for allocating contracts and doing the work?

"We're working through that. The first announcement was 40-meg DSL across Europe. That's based on Actelis technology, an Israeli-based company that we believe is the leader in native ethernet components."

That project has been rolled out in the Benelux countries and it has been announced for France. "It will be our base technology in our network for DSL. We're moving away from ATM-based DSL technologies to native ethernet-based technologies."





Native ethernet services



Actelis will be the vendor across Europe. "Fundamentally we believe in native ethernet services. We think if LANs are ethernet-based, WANs need to be ethernet-based. It's pretty simple. Why pay the cost and complexity of moving from ethernet to ATM-based carrier services? And back again at the other end. It doesn't make sense. We're really out there promoting ethernet-based services and Actelis fits in well with our plan."

The current speeds on DSL "will not service businesses well down the road", he adds, which is why Colt is moving to a standard of 40 megabits.

"This also goes back to the importance of having either a consumer-based strategy or a business strategy. I said this two years ago and I continue saying this for the altnets: you have to choose your level of specialisation. I don't think the residential market is ready to have ethernet-based services at 40 megs."

How does this DSL strategy fit with the fibre network? "You've got to use both technologies. Our primary strategy remains fibre, but the complementary is DSL."

Two years ago Charlier was also looking at WiMax as an alternative for local access. Colt was thinking that WiMax would be a good technology to deliver services up high-rise office blocks. "We tried it," says Charlier. "Trials were not as conclusive as we expected on one hand. Not failed. It works. But the application in a business environment in major cities is less evident than using WiMax in rural areas and in the residential market."

Business customers still like to understand the physical layers of the network "and the security that comes with physical networks versus wireless networks", he says. And the economics of DSL are changing, "particularly the technologies that allow us to have the type of speeds we're talking about, that Colt's introduced to do 40 megs".

DSL speeds with these techniques "are more attractive than the speeds that were going to be available around WiMax", he adds.

Colt is delivering DSL on unbundled local loops in a number of countries "where it makes economic sense". It's used for retailers and small and medium enterprises in major cities.





Corporate services for SMEs



With the core fibre-based metropolitan networks Colt aims at both larger companies and the SME sector. "We've seen a drive across Europe for SMEs to need more corporate-type grade of services for their businesses. Those are the attractive SMEs for us."

As part of its move into managed services Colt has "built very specific services" for SMEs, "particularly in a converged world, with our total offering". The company has added "about 2,000 customers for this service in a 12-month time-frame", says Charlier. "We really see the demand."

The company is hunting out "information-intensive" companies for this service, with around 50 employees. "That's the definition for us. Today across Europe we serve over 50,000 companies. We have a broad business customer base across Europe. That's fundamentally important in our strategy."

And that's the strategy that Rakesh Bhasin will no doubt be taking over when he moves into Charlier's office in December. GTB




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