One of the world's biggest US-based international business carriers is looking for a wireless operator to partner with. And it won't necessarily be Vodafone.
using former MCI network
to carry traffic which
until weeks ago went
via AT&T or Sprint
Odd, that, considering the carrier in question is Verizon Business and that Vodafone owns 40% of Verizon Wireless, the cellular operation which is in essence the carrier's sister company.
But John Killian, CEO of Verizon Business, is clear. The company will steer its corporate customers towards Verizon Wireless for services in the US, and it needs a cellular offering for the rest of the world. It is prepared to look around, he notes.
Verizon Business is effectively the old MCI, taken over for $6.7 billion, plus Verizon's own business with corporate clients, and the core backbone networks of both companies, and Verizon's extensive wholesale operation in the US.
It's no secret that the original Verizon didn't really have a view of the world outside the US. Representatives in other countries were there to liaise with local operators on behalf of US customers.
"Oh, Verizon really had very little international reach," agrees Killian. "In this segment of the market we really had none for the most part. MCI really brings all that. If you look at my company, the 35,000 people, roughly 85% are from the former MCI, 15% are from the former Verizon."
Killian is determined that the newly named Verizon Business unit, which he now heads, should adopt much of MCI's international perspective. Of the senior executives from the Verizon side of the operation, he has more international experience than most: about a decade ago, he was in London as CEO of the cable TV and telecoms interests of Nynex in the UK.
Nynex was one of the original "Baby Bells" in the US into which the old AT&T was split in 1984, and as part of its international ambitions it had 16 cable TV franchises in the UK at the time — though the company later sold its interest to NTL. Bell Atlantic, another Baby Bell, took over Nynex on the way to becoming Verizon, and Killian ran its international telecommunications business for a while.
He's been with Verizon and its ancestors for 27 years now. "A fairly wide array of responsibilities over the years, finance, operations, marketing, sales," he says. "They kept me moving around."
Now he's on a lightning tour of Verizon Business's operational units across the US and Europe, just days after Verizon formally took control of MCI after a year-long merger process.
"I'll give you the cities I've been to since January 22: I've done employee meetings in Ashburn, Virginia; Atlanta, Georgia; I did two in Texas, I did Colorado Springs, I did Cary, North Carolina, I did New York. I did Frankfurt and Amsterdam."
And now he's in the UK, in Reading, just to the west of London, where Bernie Ebbers celebrated the dotcom boom by building a vast curved glass-sided palace on a hill as the headquarters for WorldCom's European operations. WorldCom went bankrupt in July 2002 and as part of the recovery process it was later rebranded MCI, one of the companies Ebbers had swallowed up in the 1990s.
Now the MCI signs that replaced the WorldCom signs on the glistening edifice have themselves been replaced with Verizon Business signs, though the green buses that shuttle from here to the centre of Reading and the rail station still show MCI on the sides.
But Reading is more than just a relic of the MCI days. It is now the official headquarters of three international regions for Verizon Business: Europe, Asia Pacific and a third covering the Americas and emerging markets. Rory Cole, former CFO for MCI in Europe, the Middle East and Africa, will be COO, and he'll be joined by several ex-MCI colleagues. Two executives — Craig Silliman, who came into MCI from Uunet, one of WorldCom's acquisitions, and Mark Kearns, formerly head of consolidations and reporting for Verizon Communications — are moving from the US to Reading.
"I did a sales meeting yesterday and we're doing another meeting here this afternoon," says Killian. He's in Reading with his top management to meet customers and to meet staff, to tell them that their nightmare is finally over.
It was a nightmare, though it would be surprising if any of Reading's survivors are willing to talk about quite how close the then WorldCom came in the summer of 2002 to shutting down its European network and cutting off customers. At least one large incumbent operator was within hours not only of disconnecting all its services but also of starting a winding up process under the very different European bankruptcy laws. Some intense overnight work from the Reading team prised electronic funds from the US so that the bills could be paid and the European network survived.
And in the process WorldCom/MCI shed thousands of staff. Investors who believed their company to be worth of the order of $150 billion were left holding useless shares. And last July, three years after the nightmare started, Ebbers was sentenced to 25 years in jail for leading the largest corporate fraud in history.
Enthusiasm about stability
So how are the ex-MCI, ex-WorldCom survivors around the world reacting to their new ownership? "A lot of enthusiasm," says Killian. "They feel really good about Verizon Business. The MCI people feel great. The MCI people have been through a lot. They feel very good about the stability of the company."
The expanded Verizon now has a market value of around $100 billion, about 10% smaller than its rival AT&T/SBC, and it employs about 250,000 people, of whom 55,000 are in Verizon Wireless. Though inevitably there will be further cost savings — particularly if AT&T succeeds in taking over BellSouth and drives up competition still further — those ex-MCI people must feel a lot happier than they did.
"We had three priorities when we began the transition process," says Killian. "We kicked off the planning for this around October 1. The first priority was being ready to go to market." The company had to sort out sales teams and ensure there was no overlap. Sales executives had to know "who their accounts were, what the message was" and they had to be ready to go to market.
"The second area was making sure we had plans in place to realise the synergies from the transaction. You've got to create value — this is all about value creation," says Killian. "The third and equally important area is getting out in front of the employees very quickly and making sure they understood where the direction we were going was. The reception has been terrific, terrific."
There were questions because, he admits, "Verizon wasn't a big international player", and people asked if the company was really committed. "I wouldn't be here so quickly if I wasn't," he says. "And most of my team is here."
Accompanying Killian on the whistle-stop tour of its European was sales VP Wayne Huyard, an ex-MCI executive; Fred Briggs, VP of network operations who was also with MCI, and Judith Spitz, the CIO — who was working on Verizon's fibre-to-the-premises project until she moved to the new unit. "We've been going city to city," says Killian.
The launch of Verizon Business marks a very different beginning for the company around the world, he says. The company had "more focussed, standalone investments", but " they really weren't tied much to serving the large business customer segment".
And then Verizon in the US got distracted when it won the right the enter the long distance business — reserved since 1984 to separate companies such as MCI and AT&T. "We saw the market opportunity," and focussed on the US and away from the rest of the world, even in the enterprise area.
Verizon was gathering revenue of $500 million, says Killian, from its enterprise customers and organic growth "was going to take us too long", he says. "We had been looking for a while at what was the right alternative to accelerate our efforts, and we wanted to look at something that had the opportunity to serve customers beyond the US borders. MCI was very attractive to us."
He and his colleagues in Verizon recognise that for the leading companies in the world "it truly is a global business now", he adds. "Everyone is doing business off their own shore. They need to do that to build scale in their business, to become more efficient. So we're very excited to be back in the global business."
There is some unravelling to do. "I think MCI was building the operation as two different businesses. They had a US domestic business and then they had an international business."
MCI's US consumer business "will be folded in and be managed by the Verizon telecom business", he says. "Was something lost there? I don't think so. From the MCI perspective it is not an area of emphasis going forward. It was kind of in decline."
So how does Verizon define which customers should be addressed by the main telecom operation and which by Killian's Verizon Business. "It's roughly customers that bill in excess of $250,000, and/or have 300 employees," he says. "If they're less than that they would go back to the core telecom business."
He and his team focus on "the larger end of the market", with "a premise based sales effort", compared with the mass market activities using call centres that the main phone company employs.
One global business
As far as Killian's operation is concerned, "we're trying to say it's one global business" and Verizon Business is "extending the product capability". The merger was closed on January 6 and "we picked the day one market launch to be January 23". His verdict so far: "I think we've gotten off to a pretty strong start, with the branding, the sales force realignment, the product realignment."
Of course, both the ex-MCI people and the classic Verizon people have been through mergers before, so they're used to producing an integrated operation out of disparate parts.
"Clearly the biggest challenge in integration always revolves around the systems. You've had systems architectures grow up," says Killian. "All companies are in some ways a compilation. If you look at MCI they had the Uunet operation, the WorldCom operation, the MCI operation. Integrating the systems — that's an area where we're pretty good, because we've been through several big mergers. My CIO, Judith Spitz, has had a lot of experience of mergers."
So has Verizon's previous experience, merging Bell Atlantic, Nynex and GTE as well, helped with the process of integrating MCI? "I think it definitely has helped us," says Killian, citing "the experience and knowledge that we had within the team — the CIO has huge amounts of experience in systems integration".
Many people thought "the integration, particularly the network integration, would be the real challenge", he says: "It isn't. The network integration is going very smoothly."
As far as Verizon Business is concerned, now the merger is done, which companies does he regard as his biggest competitors?
Competition from AT&T and BT
"The biggest in this segment would be AT&T. In the US in terms of revenue we would be number two," says Killian. "When you get offshore, when people think of carriers, we think we're in a pretty strong number two position to BT. On some recent bids — multinational kind of bids with offshore companies — we kind of felt the biggest competition was BT, even on some that we had won."
During his visit to the UK he had dinner with staff from ABN Amro, which "signed a five-year total outsource contract with MCI in December", when the merger heading for completion.
"I think the parties saw the marriage of MCI with Verizon as a real positive — the stability of a company like Verizon was a real positive. That's what we heard last night at dinner. The two finalists were BT and Verizon."
Sometimes Verizon Business will partner with systems integrators on a bid, and "sometimes we compete with them", he says. "For truly the large multinational, we believe with scope of network, with product portfolio, we're very well positioned."
Integrating MCI and Verizon's product portfolios was "pretty easy", says Killian. "One side was clearly stronger in a particular area. If you think about ethernet services on the local side, Verizon was very strong there. On IP services, managed services, IT services, it really is the former MCI portfolio."
There was something else, he adds. "In the US the other strength we were able to bring big time to it was the wireless side. MCI didn't have wireless and that was something we were hearing strongly from the enterprise customers in the US — that they really wanted to have a more integrated offering."
And that's why he also wants an international mobile element in the mix, to match what he can offer with Verizon Wireless in the US.
Asked about his wireless offering outside the US, Killian says: "We don't have one right now. We've asked the international team to explore and say what is the capability they think they need. We know what it is in the US. We believe there are partnering options with people, that are in both parties' best interest. We'll be exploring that."
So, just to be clear, it's not the case that Vodafone, owner of 40% of Verizon Wireless, will automatically get the work? "I don't know yet, to be honest with you. Vodafone is already positioned in the marketplace here, very well positioned, a great company. I don't know. It's too soon to tell on that. It's too soon to tell."
Has he met Vodafone to discuss a partnership, on this European trip for example? "No, not on this issue."
Back to the product portfolio. "Candidly the focus of new product introductions has been domestic US so far," says Killian. "Some of them were combining the IP and security capabilities of MCI with the wireless portfolio. We also introduced product combining ethernet access with some of the private IP capabilities that MCI had. What you will see over the next several weeks and months is that we have a series of new product introductions."
And he and his colleagues have asked the team "to look as much as we can into globalising the product offerings". He admits that "we're a little bit operating as a separate business internationally", and he wants the product team "as we're rolling out a new product, have it have more global capabilities".
Ethernet is a case in point, he adds. "We believe we can do a lot more with ethernet access here in Europe than we've done in the past. So we will have a focus on that."
An area he doesn't expect to get into is application development. "That's really not a core competency of ours. We would probably partner with people on that. That's a contrast, because I guess BT has gotten into that world."
Killian and his colleagues are focussing on "the global 2000", the biggest companies in the world. "We have a very strong position with the global 2000 accounts in the US," he says. Verizon has "less of a share with companies headquartered in other countries but that's an opportunity also", he notes.
The top 180 customers, he adds, provide "around 25-30% of revenue", and of those companies "something like 140-150 are US-based and 30-40 are international-based".
About 75% of revenue comes from operations in the US for US companies, with 25% either from non-US based companies or US-based companies for their international operations. The staffing reflects this split, with 6,000 of Verizon Business's 35,000 employees based outside the US.
It's not just corporate markets that Verizon Business is chasing, though. "Once you have a network in place one of the keys to profitability is getting as much traffic as you can on your network," says Killian.
Verizon has "a substantial wholesale business in the States", he notes, estimating "about 20%" of the revenue from this source. "We've had a long heritage of being a provider to people we also compete with. Our leading strategy is retail, but while you have the network there and you have capacity if we can strike profitable wholesale deals we'll do it."
Verizon is the backbone provider for telephony services of a large US cable operator, he says. "They were concerned that, because they're competing with Verizon telecom in the retail space, would we change our strategy on the wholesale side. I said to them, absolutely not, and I could give them confidence because for years we've lived in that kind of environment, where we were providing network capacity to the people we were competing with."
Moving traffic from AT&T
And the former MCI network is now being used to carry Verizon traffic which until weeks ago went via AT&T or Sprint. "We're moving that traffic onto the Verizon Business network. Interconnecting the two networks was pretty smooth. We were really complementary — Verizon is much stronger in the local side and MCI was much stronger in the long distance and the backbone, and the data service capability."
As the national network provider to Verizon's local operations across the US, Killian's business is set to gain traffic. "Verizon's core strategy right now on the local telco side is that they're building out fibre directly to the home and the small business," he says. "They're very ambitious, deploying a lot of fibre optic, and they're doing that in order to offer a much higher speed data service, to be able to offer video to the home, and to be able to offer voice and wireless of course. The other thing is, they use our backbone. They're not building their own backbone. A lot of the traffic that they're originating is coming to me."
As Verizon develops its IPTV service, it will be concentrating operations in "a number of head-ends", he says — "head-ends" being the cable industry term for the point at which TV channels are gathered together for onward delivery to the end customer. "Our backbone will be the one that will be carrying it," he smiles. "That's the strategy."
That means that Verizon's broadband TV project will become a core revenue stream for Verizon Business. "And it's going to get even bigger. It puts a lot of traffic onto my network. That was one of the big synergies in the transaction."
Even before that develops, in the first few weeks after the closing of the merger, "we've already moved billions of minutes that we've been taking from other carriers", says Killian. "We haven't moved it all because it takes a little time, but you will see a steady stream of traffic moving to us."
And that will apply internationally as well. When a Verizon user in Poughkeepsie, New York, dials a number in Paris or Prague, the former MCI network will carry the call for most of the way. "It'll go to the Verizon Business gateway and our own undersea cables that we have ownership in," says Killian.
Network integration was eased because MCI and classic Verizon both sourced there equipment from the same set of providers. "Both of us buy from Nortel. Both of us buy from Alcatel. Both of us buy from Cisco."
There's a lot of work to do, particularly as MCI hadn't completed its systems integration after the mergers that created it. "It had a lot of billing systems," says Killian. "We see a substantial opportunity here to both improve service but also to gain efficiency. We've got a roadmap already laid out for the next 18-24 months of IT investments that will allow us to consolidate systems on the billing side, the support systems. The other area is the portal side, so the customers can directly interact with us. We think there's a lot of opportunity there."
How far has Verizon reached in that process? "We kind of know what direction we want to go, what the main billing engines are," he says. "We do a lot of internal development. Verizon has a huge internal IT capability. We do use outside suppliers but we do a lot of the development ourselves."
CIOs of Verizon Business and the other main divisions of the company meet in an IT Council. "We strive to use similar vendors, we strive to share resources," he says. "Let me give you an example: internal data centres. We will probably share the management and the capacity of the data centres with the Verizon core group. It's the way to gain efficiency. We'll be looking to do that in a lot of cases."
The main company has an IT operation in Chennai and Hyderabad in India, and "we will put some resource also in India to help us with some of the development".
Verizon Business has a capital budget: "We haven't publicly disclosed the amount but it's fairly significant. Some of it goes towards IT investment but a lot of it goes on expanding network capability and also providing more capacity and supporting new product introductions. We will be investing, both internationally and domestically in the US."
Investment in switches
There will be some network investment. "We will add some switches this year," he says, "because as we take the traffic on to our network that was going to other carriers it's putting a pretty heavy load on the switch side so we will be deploying more switches."
So what distinguishes one global telecoms company, such as Verizon Business, from another, such as AT&T or BT or one of the others? "One, scope of owned network."
The company has more international network than AT&T, he says. "We do — I could get my network guy to talk to you." And that brings "the ability to go to a lot of different markets".
On top of that, he notes "the management capabilities that we bring in terms of a broad array of services. We've been doing for a number of years a lot of outsourcing. We've been very early on in IT services — not applications development, but running data centres for people. One of our first, 17 years ago, was an outsource for DaimlerChrysler. We've been doing it for a long time."
Thirdly, service levels. "Globally it's really your reach, the depth of your product portfolio and then your experience with service. A good illustration is ABN picking us, because that was a substantial contract award. Winning that just showed the depth of the offering."
And talent. "You've got to have the right people too." Necessary attributes are "speed, the ability to be quick in the marketplace, agility", he says. "We're pretty good at that. And MCI brings a lot of that. I'd say MCI was better at that." GTB